In this article, we discuss 5 stocks to buy amid rising interest rates. If you want to read our detailed analysis of these stocks, go directly to 10 Stocks to Buy Amid Rising Interest Rates.
5. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 58
The Home Depot, Inc. (NYSE:HD) is a home improvement retailer. Rising interest rates usually lead to a boom in the housing market. This boom incentivises home improvement, leading to greater sales for businesses like The Home Depot, Inc. (NYSE:HD). Coupled with the supply chain capabilities and size benefits that The Home Depot, Inc. (NYSE:HD) enjoys, the coming months look set to bring new growth opportunities for the company.
Elite hedge funds hold large stakes in The Home Depot, Inc. (NYSE:HD) as a new fiscal year begins. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in The Home Depot, Inc. (NYSE:HD), with 7.4 million shares worth more than $2.4 billion.
In its Q1 2021 investor letter, Ensemble Capital, an asset management firm, highlighted a few stocks and The Home Depot, Inc. (NYSE:HD) was one of them. Here is what the fund said:
“Notable contributors to the Fund’s returns this quarter (included) Home Depot. Home Depot (8.9% weight in the Fund) continued to benefit from a red-hot housing and home improvement market, delivering record financial performance in 2020. As a high return on invested capital business, any step-up in growth results in considerable shareholder value creation. While 2021 comparable sales may not yield impressive headline results, we believe there are several secular tailwinds supporting continued housing investment, including millennials entering prime household formation/peak earnings years, relatively low interest rates, and government policies.
Home Depot (8.9% weight in the Fund): The big orange sign of Home Depot is a familiar sight for homeowners across the country. Despite the rise of Amazon, Home Depot has generated outstanding results for shareholders during the rise of eCommerce, even as Home Depot’s end market in housing suffered the worst collapse in a century. Over the last fifteen years, a period which began at the peak of the housing bubble, Home Depot’s stock has generated annual returns of 17% a year, outperforming the S&P 500 by approximately 7% a year.
But while homeowners can attest to their continued shopping at Home Depot, they may not be aware that only about half the company is dedicated to serving Do It Yourself homeowners, with the other half acting as a key supplier to small contractors – which the company calls Pros – who depend on Home Depot as a mission critical business partner.
While the company does not report on their contractor business separately from their homeowner business, they have regularly offered comments indicating that contractors make up just 4% of their customer base, but about 45% of revenue. Basic math implies…”[read the entire letter here]
