Markets often start to create narratives about different sectors. That can lead to some sectors flying high on hope, while others start to trade out of favor. This year has seen semiconductor stocks rally thanks to the rollout of new AI technologies.
Other sectors have fared differently. Interest-rate sensitive stocks like utilities and telecoms have taken a hit. Media stocks have been out of favor. And so have many retailers, as consumers have focused more on experiences than buying goods.
However, that trend isn’t entirely dead yet. While sales slowed at Home Depot (HD), the home improvement retailer still beat expectations.
And the company warned about moderating consumer spending. Revenues are off 2 percent in the past year, and earnings are down 10 percent.
But the surprise earnings beat helped to push shares out of a downtrend and into an uptrend. With shares trading at just 18 times earnings, markets still see weakness.
Home Depot is holding up well relative to the housing market, as higher interest rates are keeping homeowners in the same home for longer. That’s a trend that bodes well for ongoing home improvement.
Action to take: Shares likely have more upside here. At current prices, today’s investors can also get a 2.9 percent yield.
For traders, the January 2024 $330 calls, last going for about $1.60, could see high-double-digit returns from a further uptrend in shares.
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 of the companies mentioned in this article.