Market Malaise Continues to Weigh on Home Depot Stock

This leader in home improvement occupies a weird space in today's markets

Home Depot (NYSE:HD) is the nation’s leading home improvement company — it has more than 2,200 stores across North America.

Retail Stocks to Buy for the Long Run: Home Depot (HD)
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Interest rates are low and continuing to fall. The average U.S. consumer is strong and confident. This means that we should be in a good market for these temples of DIY-ers and contractors. However, the global recession that seems to be slowly encompassing the borders of the U.S. along with the U.S.-China trade war are making unbridled optimism a bit difficult here.

My Portfolio Grader has HD stock as a “C” now, which makes it a hold. While the stock is up an impressive 33% year-to-date, it’s only up slightly more than 8% in the past 12 months.

And that tells much of the story for the U.S. economy.

HD and the Bigger U.S. Economic Picture

Last year’s fourth quarter slammed companies for two reasons. First, most companies warned that 2019 wasn’t going to be as good as 2018. They predicted the economy would slow and earnings were going to be good, just not great.

The second reason was the Federal Reserve was continuing to sell off its massive portfolio of mortgage-backed securities that it had been accumulating since the market meltdown a decade previously. The Fed was also raising rates. Selling the mortgage-backed securities had the same effect as raising rates, so the Fed was doubling down on rate hikes. The markets went nuts. That December selloff took a lot of 2018 profits off the table for investors.

When the Fed reversed course in 2019, stopped selling mortgage-backed securities and began to lower rates, the stock — and bond — markets took off again. Much of the capital went to high-quality companies with a strong, reliable dividend. This is a group I often call the Money Magnets.

And as emerging markets — as well as Europe — began to slow, more overseas money was showing up in the U.S. markets for safety. The escalating trade war with China also saw money flood to U.S. shores for the same reason. And that money was deployed in U.S. stocks and bonds.

That’s why there are a lot of companies with low 12-month performance numbers and impressive year-to-date numbers.

But the future isn’t the past. We’re now at an entirely different place than we were 10 months ago.

The Bottom Line on Home Depot Stock

However, it’s still a somewhat confusing place. While U.S. rates are low and consumers are still doing well, the trade war is beginning to take its toll. Many large companies stockpiled goods in anticipation of losing access to China’s exports.

But those stockpiles are emptying and imported goods are more expensive. That will hit margins. The impeachment hearings started against President Donald Trump will not be helpful in trade negotiations with China, especially in an election year.

Tensions with Iran are escalating, as most major economies in the world are now showing real signs of recession. On one hand, it’s looking like the world has yet to achieve escape velocity from the 2008 meltdown.

For now, money remains cheap for U.S. consumers and jobs seem to be plentiful, which is all very good news. The fact of the matter is that the United States remains the world’s oasis. There are U.S. stocks that offer both growth and income. And given most of Home Depot stock’s revenues are derived in the U.S., it’s a solid choice to stay out of global challenges. However, its exposure to goods from China may hurt earnings in the near term.

All of this is the context for Home Depot stock’s current “C” rating. While I still consider it to be a strong company, I do acknowledge that several other companies are earning an “A” from my Portfolio Grader and an “A” from my Dividend Grader, too. For an inside look at the strategy behind my AA-rated stock selection, click here.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


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