As the S&P 500 proudly parades its remarkable achievement of surging past the 5,000-point milestone, the stock market has ignited into a frenzy of bullish exuberance. With a scorching 22% surge in the last year, investors have cast aside any lingering recession fears, embracing an optimistic outlook for the 2024 economy.
Riding this wave, tech stocks have witnessed a resurrection, spearheading the Nasdaq Composite to a meteoric 40% climb. However, amidst this euphoria, there are other stocks quietly positioned to capitalize on plummeting interest rates and a rapidly expanding economy.
Enter Home Depot (NYSE: HD), a potentially big winner in this buoyant market.
Weathering the Storm: Recent Results
Despite enduring an uncharacteristic sales slump over the last two fiscal years, Home Depot has exhibited resilience. Customer traffic dwindled in 2022 and 2023 as the soaring pandemic-induced fervor waned, causing a slowing in spending rates and a pressuring of the chain’s expansion due to plunging lumber prices in recent quarters.
HD Operating Margin (TTM) data by YCharts
Though comparable-store sales are projected to decline by 3% in fiscal 2023, in stark contrast to rival Lowe’s Companies (NYSE: LOW) facing an expected 5% slump, these metrics hint at an impending resurgence for Home Depot when the housing market revives during the next economic upswing.
Bearing Fruits: Cash and Profits
Amidst the tumult, Home Depot has managed to generate higher profits and robust cash flow, setting the stage for substantial long-term rewards for patient investors. With operating cash flow leaping to a striking $16 billion in the past nine months, up from $10 billion a year ago, and the retailer’s profit margin steadfastly hovering near 15% of sales, Home Depot’s prospects tower over the industry leader, Lowe’s, which has consistently operated at a 13% profit margin.
Seizing the Moment: No Need to Wait
Investors need not bide their time for the economic rebound to commence in earnest to harvest fruitful returns from Home Depot’s stock. Although short-term volatility looms on the horizon, the long-term outlook for the home improvement industry is radiant. As home prices continue to ascend and favorable demographics usher in younger generations into their homebuying years, Home Depot shareholders are poised to reap the benefits over the coming years.
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Demitri Kalogeropoulos has positions in Home Depot. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Lowe’s Companies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
