The home improvement industry has faced some pretty rough headwinds over the past year. With inflation and high rates taking a toll on consumer budgets, it’s not hard to imagine many big-ticket discretionary purchases are being pushed out into the future, perhaps once rates are far lower.
After all, home improvement projects and a new coat of paint on the house aren’t urgent, especially when grocery bills are going through the roof.
As inflation and rates settle, perhaps more homeowners will be able to commit to ambitious projects around the home. Additionally, Baby Boomers opting to age in place may be overdue for a kitchen remodel or something of the sort.
Either way, the macro landscape could become markedly better from here, especially if the second half of 2024 sees a rate cut or two. Here are three home improvement stocks to buy that could rebuild and recover to prior highs if the next home improvement cycle really is upon us.
The Home Depot (HD)
The Home Depot (NYSE:HD) is a remarkably well-run retailing play in the Dow Jones Industrial Average — it’s the Dow’s fourth-largest position. But it has also helped contribute to the Dow’s lagging year-to-date performance. At writing, HD stock is up just over 2% since the year began. Still down around 15% from its late-2021 all-time highs, the king of home improvement projects seems less timely and perhaps worthy of paring from a portfolio.
Despite management’s impressive cost management, HD stock is still sensitive to those wild cyclical swings. After dragging for quite a while, there is hope that the next upswing may not be too far off, especially as lower rates pave the way for a drastic uptick in discretionary spending.
Further, Home Depot’s recent acquisition of SRS Distribution represents a move that could really jolt the Pro business.
At 23.7 times trailing price-to-earnings (P/E), with a 2.54% dividend yield, HD stock looks like the ultimate value play that everyday investors seemed to have forgotten about amid the ferocious bull run in tech.
Sherwin Williams (SHW)
Paint, stain and coatings maker Sherwin-Williams (NYSE:SHW), whose slogan is “Cover the Earth,” recently corrected more than 13% after briefly flirting with new all-time highs earlier this year. I view the latest dip in SHW stock as nothing more than an opportunity for investors seeking to give their portfolios a new coat of paint ahead of what could be a drastic uptick in home improvement and remodels.
Unlike more ambitious home remodels, paint jobs aren’t as painful to the budget. Indeed, in most cases, a loan just isn’t necessary to pick up a few buckets of paint to give the living room a new vibe or the patio deck a new stain. As the Fed gradually eases its foot off the pedal, with a slow trickle of rate cuts, perhaps the paint and stain plays could be first to lead the charge higher as consumers begin spending on improvements around the house.
KeyBanc analyst Aleksey Yefremov thinks Sherwin has “the strongest pricing power in coatings.” Yefremov isn’t wrong; Sherwin’s strong brand has ample pricing power, even amid inflation. With a $400 high price target (representing over 33% upside from here), Yefremov is quite bullish on the stock.
Lowe’s (LOW)
Lowe’s (NYSE:LOW) stands out as a wonderful value option for investors looking to play a return in home improvement projects.
At writing, LOW stock goes for 18.2 times trailing P/E after recently correcting from 52-week highs of around $261 per share. That’s markedly cheaper than Home Depot. And though billionaire investor Bill Ackman sold most of his stake earlier this year, I’d not be so quick to book profits, especially ahead of the Fed’s first rate cut.
The company seems to be tapping into mixed reality (MR) to help customers visualize changes around the home before they commit to a purchase. Indeed, spatial computers such as the Apple (NASDAQ:AAPL) Vision Pro may mark the next frontier in home projects. Of course, the device is incredibly expensive for most people.
However, in a couple of years, once more devices are in more homes, perhaps it will be essential to strap on the headset well before heading to the local Lowe’s. For now, the retailer plans to bring Vision Pros to its stores to help customers visualize the perfect remodel.
On the date of publication, Joey Frenette did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.