Consumers are finally starting to feel the impact of higher interest rates. They’re cutting back on spending to avoid having to pay high interest rates on borrowed money. That trend is impacting sales, particularly for larger products that often need to be financed.
However, that trend could easily shift the other way when interest rates start to decline. Today’s investors may want to start looking for consumer goods companies to grab on sale. Today’s weakening sales numbers can easily reverse when rates drop.
Home improvement retailer Home Depot (HD) is one of the first retailers to report. Sales have slowed. But not all of their sales are tied to expensive items. Normal home maintenance needs suggest that sales won’t slow too far for the industry leader. That kept shares from a big selloff following their sales miss.
Shares trade at 22 times earnings, about in-line with the overall stock market. And shares have slightly lagged the market over the past year, indicating a potential recovery play for patient investors.
Action to take: Home Depot is a long-term holding worth picking up when shares are out of favor with the market. At current prices, shares pay a 2.6% dividend, and Home Depot has a history of raising its payout over time.
For traders, the August $360 calls, last trading for about $7.05, could see mid-double-digit returns in the coming weeks as shares continue their long-term uptrend.
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.