The Thawing Housing Market Bodes Well for Underperforming Industry Leaders

2023 saw the housing market freeze up. Existing homeowners didn’t want to move, as they would have to pay significantly higher for a mortgage than on their existing home. That resulted in a tight housing inventory, which helped keep home prices high.

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  • 2024 will likely see interest rate cuts. Mortgage rates have already dropped, and some potential sellers are hitting the markets. With the housing market thawing out, potential sellers may start looking to spruce up their homes.

    That bodes well for home improvement plays, such as industry leader Home Depot (HD). The home improvement retailer has been trending higher in recent months, but is only up 5 percent over the last year.

    Home Depot is coming off a struggling year, with revenues down 3 percent. But shares are getting upgraded as the thawing housing market could lead to margin improvement.

    Shares trade at 21 times forward earnings, about in-line with the S&P 500.

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  • Action to take: Even with shares near a 52-week high, Home Depot has been a market underperformer and could trend higher this year. Investors may want to build a stake now, and use any pullback to add to the position.

    At current prices, Home Depot pays a 2.4 percent dividend.

    For traders, the May $375 calls, last going for about $8.80, could return mid-double-digit profits or better on a further rally in the coming months.


    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.

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