We recently compiled a list of the 10 Best Consumer Discretionary Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where The Home Depot, Inc. (NYSE:HD) stands against the other consumer discretionary stocks.
Many experts and analysts are concerned about a slowdown in consumer spending. However, reports show that consumer behavior is changing rather than slowing down. According to a report by Colliers Retail Market Intelligence, retail foot traffic rose by 4.4% in June, indicating strong consumer activity despite flat overall sales.
While furniture and home improvement stores saw declines due to reduced monumental purchases and a sluggish housing market, grocery stores, and apparel retailers performed better. Grocery sales grew by 1.7%, with a nearly 5% increase in foot traffic, as consumers managed their budgets despite cutting costs. Apparel sales also increased by 3.8%, driven by early back-to-school shopping and wardrobe updates, leading to an 8.3% rise in foot traffic.
In July, consumer spending saw a modest increase compared to June, with gains across 10 of 12 retail categories, as reported by the CNBC/National Retail Federation (NRF) Retail Monitor. Retail sales, excluding autos and gas, rose by 0.7% month-over-month, slightly up from June’s 0.5%, but the year-over-year growth slowed to 0.9%, down from 3.4% in June.
Core retail, which excludes restaurants, saw a 1% monthly increase. Significant sector performances included a 3.4% rise in gas station sales and a 2.1% increase in restaurant spending month-over-month. Conversely, the healthcare, personal care, and garden supplies sectors experienced slight declines.
June and July data together indicate that consumer spending remains resilient, supported by strong household finances and a strong job market. While some sectors, particularly furniture and home improvement, are struggling due to reduced consumer confidence and a slow housing market, other categories are performing well.
The data suggests that consumers are still willing to spend, especially on essential and seasonal items, though they may be more cautious with larger purchases. Despite some areas of decline, the overall retail environment appears stable, with consumers continuing to spend where they find value, which indicates a cautiously optimistic outlook for the remainder of 2024.
Latest Updates on Interest Rates and Potential Effects On Consumer Spending
In the July meeting, Fed Chair Jerome Powell highlighted the Fed’s ongoing focus on achieving maximum employment and stable prices. He noted significant progress in the economy, with inflation dropping from 7% to 2.5% and a balanced labor market with low unemployment at 4.1%. The Fed chose to keep interest rates steady within the 5.25% to 5.5% range and continue to reduce its securities holdings to maintain a restrictive stance, which is aimed at aligning demand with supply and reducing inflationary pressures.
Powell mentioned that while inflation has eased, the Fed is not yet ready to lower rates and requires more consistent positive data before making such a move, possibly as early as September. According to the CME Fed Watch Tool, all the experts are expecting cuts in September. 50.5% of the experts predict a 25 basis points (bps) reduction in the interest rates while 49.5% expect a 50 bps cut.
Rate cuts generally have a positive effect on consumer spending. When interest rates are lowered, borrowing becomes cheaper, which could lead to increased consumer borrowing and spending. This increased affordability can boost consumer confidence and promote spending on discretionary items. That’s a good set up for discretionary stocks, and with that, let’s look at the 10 best consumer discretionary stocks to buy according to hedge funds.
Our Methodology
For this article, we used the Finviz stock screener to identify over 50 large-cap consumer discretionary stocks then narrowed our list to 10 stocks that were most widely held by institutional investors as of Q1, and listed the stocks in ascending order of hedge fund sentiment.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A home improvement store overflowing with a variety of products and supplies.
The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 70
The Home Depot, Inc. (NYSE:HD) is a leading American multinational corporation specializing in home improvement retail. As the largest home improvement retailer in the U.S., it offers a broad range of products, including tools, construction materials, appliances, and garden supplies.
Home Depot (NYSE:HD) provides both in-store and online shopping options. The company’s online presence includes websites such as homedepot.com, homedepot.ca, and homedepot.com.mx, as well as specialized sites like blinds.com, justblinds.com, and americanblinds.com for custom window coverings.
Additionally, Home Depot (NYSE:HD) operates thecompanystore.com for textiles and décor, and hdsupply.com for maintenance, repair, and operations (MRO) products and services.
At a stake value of $5.5 billion, 70 hedge funds held positions in Home Depot (NYSE:HD) in the first quarter. As of Q1, Fisher Asset Management is the most dominant shareholder in the company and has a position worth $3.445 billion. The company takes the 10th spot on our list of best consumer discretionary stocks to buy according to hedge funds.
Since going public in 1981 with just six stores, Home Depot (NYSE:HD) has grown into a major player in the home improvement sector. Today, it operates over 2,300 stores across the United States, Canada, and Mexico. The company’s stock price has delivered an astounding return of 112,364% as of August 9, since its initial public offering, which highlights its remarkable growth and success.
Home Depot (NYSE:HD) is the largest do-it-yourself and home improvement retailer in the U.S. and benefits from its extensive network and well-established business model. One of the key advantages of the company is its stable focus on home improvement projects, rather than shifting consumer trends in fashion or electronics. This allows the company to maintain steady performance and consistently increase dividends while repurchasing stock. The company’s strong position in the market makes it a reliable choice for investors.
Home Depot (NYSE:HD) is well-positioned for future growth, especially as the housing market shows signs of recovery. With the Federal Reserve expected to lower interest rates starting in September, borrowing costs will decrease, which could revitalize home buying and renovation activities. Lower mortgage rates and easier access to home equity lines of credit will likely give way to both home purchases and renovation projects, benefiting the company.
Additionally, Home Depot (NYSE:HD) is expanding its market share among professional contractors, a crucial segment for its growth. This expansion has been further supported by the acquisition of SRS Distribution done in March, a leading distributor in roofing, landscaping, and pools. This acquisition opens up access to a $1 trillion market, possibly improving the company’s footprint and growth potential.
Overall HD ranks 10th on our list of the best consumer discretionary stocks to buy according to hedge funds. You can visit 10 Best Consumer Discretionary Stocks To Buy According to Hedge Funds to see the other consumer discretionary stocks that are on hedge funds’ radar. While we acknowledge the potential of HD as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.