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Actionable news in HD: HOME DEPOT Inc,

Will Home Depot Break Out Higher After Earnings?

Summary

Home Depot continues to outperform competitors and the broad market.

Low oil prices continue to increase discretionary income.

Growing housing market creates additional need for home improvement projects.

Home Depot's financials indicate more growth to come.

Home Depot (NYSE:HD) has outperformed the market since the start of the bull run. Since 2014 HD has outperformed both the SPY and the RWR by roughly 55% and 35%, respectively. Current economic conditions provide a great environment for the home improvement industry and Home Depot has positioned itself as the industry leader to take advantage of growth opportunities. In 2014 we recommended the stock when it was trading at $80.00. Today we continue to support Home Depot and believe there are more gains ahead.

Below is a chart comparing Home Depot to other retailers and the overall market. Notice how gains in the home improvement sector have trumped those gains from other retailers. This supports the findings by the economic report from the president which reveals individuals are using their additional spending power to reduce bad debt and make house related purchases among others.

Source: Google Finance

When consumers have more discretionary income, retail sales tend to be driven higher. The catalyst increasing discretionary income in today's environment is the cheap price of oil in addition to low unemployment. Oil continues to remain below $50.00 a barrel, saving consumers money at the gas station. As long as oil remains at these low prices, consumers will continue to have more money to spend on well overdue housing projects, and we believe oil will stay below $50.00 into the foreseeable future. The oil companies essentially create their own price ceiling by slowing production when the price of oil becomes too low. The companies that can survive on low production will until oil becomes more profitable again. The price level at which profitability is high enough is about $50.00 a barrel. Meaning once prices get...


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