Source: PaxForex Premium Analytics Portal, Fundamental Insight
Have some extra cash sitting idle and wondering where to invest it? Consider taking a stake in retail powerhouse Home Depot. Despite recent fluctuations, the stock has pulled back from its peak earlier this year, yet remains close to its all-time high set in 2021.
Investors are holding onto Home Depot's stock for good reason. Many believe it's undervalued and see a bright future ahead for the company. Here are four compelling reasons why now might be the right time to consider buying Home Depot shares:
- Home Depot: A Resilient Giant
Although currently facing challenges, Home Depot has a history of bouncing back. Its market dominance with over 2,300 stores across North America makes it the largest hardware store chain globally. Unlike its main competitor Lowe's, Home Depot commands a substantial 60% more business, largely due to its extensive network of relationships with professional contractors who contribute significantly to its sales.
Home Depot alone drives approximately 30% of the country's total spending on home improvements, highlighting its significant market presence and influence.
- Commitment to Dividends
While Home Depot hasn't consistently increased its dividend payouts, it has maintained a record of quarterly dividend payments since 1987. Periods such as the post-2000 dot-com crash and the aftermath of 2008's financial crisis saw its dividend growth stagnate temporarily. This cautious approach during economic uncertainties underscores Home Depot's prudent financial management.
Despite these occasional pauses in dividend growth, it's important to recognize that Home Depot remains a solid dividend stock with a robust track record. The company continued to pay dividends even during challenging periods.
Assuming the economy maintains its current health, Home Depot is well-positioned to increase its annual dividend payout. Since resuming dividend growth in 2010, its quarterly dividend has grown at an impressive annualized rate of 18%.
- Significant Pullback from Recent Highs
While a 14% decline from its peak in March might not seem like a steep discount in most cases, particularly after a strong upward trend, Home Depot's stock behaves differently. Such discounts are rare and tend not to last long.
Similarly, the forward-looking dividend yield of 2.6%, while not the highest among blue-chip stocks, is the highest Home Depot has offered in over a decade.
In essence, it's crucial not to be overly fixated on entry prices, potentially missing out on a compelling opportunity.
- Anticipating a Revival in Homebuilding
Lastly, prospective investors may find Home Depot enticing due to the imminent recovery in homebuilding, a primary reason for its recent underperformance since early 2022.
The slowdown in new home demand, exacerbated by high real estate prices and interest rates, has led to a significant decline in new home sales and building permits. However, market cycles suggest that this downturn won't last indefinitely.
Historically, real estate markets tend to rebound cyclically, driven by reduced prices and interest rates, eventually leading to increased home construction as affordability improves. While the timing of this recovery remains uncertain, stocks typically anticipate such improvements rather than react to them.
Therefore, the recent decline in Home Depot's stock presents an opportunity to position oneself ahead of the anticipated recovery, particularly given its substantial reliance on contractor sales, which constitute half of its revenue.
As long as the price is above 325.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 334.79
- Take Profit 1: 345.00
- Take Profit 2: 355.00
Alternative scenario:
If the level of 325.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 325.00
- Take Profit 1: 320.00
- Take Profit 2: 315.00
