Home Depot (NYSE:HD) is the largest home-improvement retailer in the U.S., with a market cap of $236 billion.
That makes it a bellwether for the housing sector as well as the consumer sector. If the housing market is strong, people are moving and renovating. If the consumer sector is strong, they’re upgrading their appliances and doing DIY or renovation products.
The thing is, even when the economy isn’t going gangbusters, Home Depot has found a way to make things work. While I talk about three significant reasons for you to buy HD stock for the long term, the most fundamental reason is simply that it has proven it can find a way to grow, even during tough economic times.
The fact is, while housing stocks were hot at the beginning of the year, their momentum has cooled because potential home buyers are sitting on their hands waiting to see what happens with interest rates.
Also there’s a worker shortage which has pushed labor costs up, and tariffs with China and Canada have added to rising prices on materials. Housing prices are rising with interest rates and both may be a bit rich for many buyers, especially considering the fact that banks are still stingy about lending.
However, HD has continued to perform well, which means it has found a way to deleverage its business from the vagaries of the housing sector. And that is key moving forward.
Still, if that doesn’t impress you, I have three other compelling reasons.
Why You Should Love HD Stock
The Interline Merger: Last year, HD bought Interline Brands a leading maintenance, repair and operations (MRO) firm. MRO firms basically work with facility maintenance staffs in multifamily housing, industrial, governmental, educational and corporate facilities and supply them with parts and equipment to keep their buildings maintained.
This is recurring revenue that is almost recession-proof. And at this point, the sales teams of both companies are now integrated, as are lines of credit, so HD and Interline can cross-sell their products seamlessly.
This is a solid revenue base with huge potential.
Aiming for Professionals: Professional contractors and subcontractors make up a lion’s share of HD’s revenue. By catering more to their needs — especially lumber and kitchen or bathroom units — HD can face off successfully against local competitors and provide much more variety for customers.
By continuing to focus operations on its core business, HD can maximize revenue.
The Expanding Economy: This is the “rising tide lifts all boats” argument. But for HD, it’s true. As long as the economy continues to expand, people will spend more money.
As fall approaches, people may decide to get a snow blower instead of a shovel. Maybe they decide to do a DIY on a bathroom. Maybe they hire a contractor to finish the basement. Getting a few more dollars from consumers adds up.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
