Home Depot and the Other Housing Recovery Trade
From some perspectives, the best play on a recovering housing market isn’t a bet on homebuilding companies like Toll Brothers (NYSE: TOL) and Lennar Corporation (NYSE: LEN), but instead to look to home improvement retailers like Home Depot (NYSE: HD) and Lowe’s Companies (NYSE: LOW).
In this way, a bullish attitude toward a housing relies only partially on a recovery in housing. By making the move instead in companies like Home Depot and Lowe’s, goes the thinking, traders and investors have not just the winds of a potentially improving housing market at their backs, but also the arrival of a season that is almost synonymous with gardening, “spring cleaning” and fixing whatever winter hath wrought.
Heading into trading on Tueday, shares of Home Depot have closed lower for three days in a row, and are trading mid-way between short-term lows and short-term highs. The selling, however, has boosted HD’s ratings ahead of trading on Tuesday, with the stock earning a “consider buying” rating of 8 intraday before selling into a 7 out of 10.
Note that the selling in HD comes as the stock pulls back from a recent trip to new, 52-week highs.
Home Depot rival Lowe’s Companies, has traded lower over the past two days and has also pulled back from new, 52-week highs reached earlier in January. Lowe’s has a neutral rating of 6 out of 10, earning a one-point upgrade over the course of Monday’s trading.
Are there other stocks outside of these two that provide traders with the ability to trade the same theme (homebuilding derivative plays)? One company that might be worth watching over the next few days is Sherwin-Williams (NYSE: SHW). The paint maker pulled back over the past two days after rallying to new, 52-week highs, and has been trading in bull market territory since mid-October.
Want more stocks? Read our latest from 7 Stocks You Need to Know: Trading a Double Shot of Peet’s Coffee and Tea.
David Penn is Editor in Chief of TradingMarkets.com.