The sharp rise in mortgage rates in the past year has caused the cost of financing a home to nearly double. Most investors are expecting a slowdown in home sales, as well as a price drop, as long as mortgage rates stay so high.
However, while sales may slow down, homeowners will still need to maintain their homes and continue to repair their properties.
That bodes well for beaten-down home improvement retailers. These companies are near 52-week lows, yet continues to show strong same-store sales. That trend has helped them continue to earn analyst praise in today’s markets.
Among retailers, Home Depot (HD) is the industry leader, with the best profit margins and lead in store sales. The recent drop in share price has dropped the company’s valuation to 18 times earnings.
Action to take: Earnings and revenue have slightly risen over the past year, even as shares have dropped 13 percent over the past year. The stock is also a dividend growth play, yielding about 2.8 percent right now. However, buyers might first want to wait for shares to stop their current downtrend.
For traders, the January 2023 $300 calls, last going for about $15.00, can potentially get a bit cheaper in the coming weeks. Traders should be a bit patient to get into this trade, but as soon as the market looks set to move higher, so should the option.
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.