Grab Out-of-Favor Earnings Winners

Earnings season shows which companies are able to navigate today’s economy, and which companies are missing out. While the economic data shows strong topline growth, there’s been slowing demand across a number of major sectors in the economy.

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  • For instance, the housing market has slowed as interest rates have soared. Homeowners are electing to stay in their existing homes for longer. That should be good for home improvement projects, and companies associated with that trend.

    However, that doesn’t appear to be the case. Demand is slowing, as indicated by the latest earnings report from Home Depot (HD). While the data was disappointing, the retailer did manage to beat earnings expectations.

    Revenues are now down 3 percent over the past year, and earnings are off by 12 percent. However, those trends could reverse later in the year as interest rates ease, as that may increase interest in the housing market.

    Action to take: The company is an industry leader. While not cheap at 22 times earnings, it could be worth a buy on any market weakness in the coming months. At current prices, Home Depot also pays a 2.3 percent dividend.

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  • For traders, the May $370 calls, last going for about $13, could see mid-double-digit returns on a rebound in the weeks ahead from the selloff following the earnings report.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.