We recently compiled a list of the 7 Best Consumer Cyclical 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 cyclical stocks.
Cyclical stocks are shares of companies whose performance is heavily dependent on business cycles and economic conditions. These stocks represent industries that produce non-essential, or discretionary, goods and services, such as automobiles, housing, entertainment, travel, and retail.
As the Federal Reserve lowers interest rates, it creates a favorable environment for investing in cyclical stocks. Lower interest rates reduce the cost of borrowing, which encourages both consumers and businesses to take out loans and spend more. This boost in consumer spending is particularly beneficial for companies that sell discretionary goods and services, such as those in the automotive, housing, travel, and retail sectors.
According to the latest report, released by the U.S. Bureau of Economic Analysis (BEA) on September 27, personal income in the US increased by $50.5 billion, or 0.2%, in August. This growth was driven by an increase in compensation, which was partially offset by a decrease in personal income receipts on assets. Disposable personal income (DPI), which is personal income less personal current taxes, also increased by $34.2 billion, or 0.2%. Additionally, personal consumption expenditures (PCE) rose by $47.2 billion, or 0.2%, with a $54.8 billion increase in spending for services and a $7.6 billion decrease in spending for goods.
Large Bank Sees Stabilizing Economy Boosting Cyclical Stocks
On October 14, CNBC reported that Morgan Stanley is optimistic about the stabilizing economy and its potential to boost cyclical stocks. According to equity strategist Michael Wilson, the recent rise in yields following optimistic economic data, including the latest wholesale inflation report, could indicate that the bond market is beginning to part with some of the growth concerns on the hope that the economy is on stable footing. He added that this trend provides greater confidence in cyclical stocks, which are positively correlated to upward moves in the 10-year Treasury yield. Wilson expects both rates and economic data to support cyclical stocks. The bank’s bullish call comes as the S&P 500 rose to a fresh record high, supported by better-than-expected results from a handful of companies that have reported third-quarter results.
Cyclical stocks offer significant opportunities for investors looking to capitalize on economic growth and favorable monetary policy. As the Federal Reserve continues to lower interest rates, the reduced borrowing costs will continue to stimulate consumer and business spending, driving demand for discretionary goods and services. With that in context let’s take a look at the 7 best consumer cyclical stocks to buy according to hedge funds.
A brightly lit showroom, with modern furniture and tools on display.
Our Methodology
To compile our list of the 7 best consumer cyclical stocks to buy according to hedge funds, we used the Finviz and Yahoo stock screeners to find the largest consumer cyclical companies. We then narrowed our choices to 7 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? 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).
The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Investors: 86
The Home Depot, Inc. (NYSE:HD) is the largest home improvement retailer in the U.S. The company provides a wide range of products, from construction materials and tools to home appliances and garden equipment. The company has over 2,300 stores across North America that serve both professional contractors and DIY customers.
The Home Depot, Inc.’s (NYSE:HD) growth potential is driven by its focus on expanding the Pro market, which is estimated to be a $1 trillion addressable market. The company’s Pro Market refers to the segment of its business that focuses on professional contractors and builders. Home Depot (NYSE:HD) is accelerating its investments in this area. In June, The Home Depot, Inc. (NYSE:HD) also acquired SRS Distribution (SRS) for $18.25 billion, which is expected to boost the company’s market share in the Pro market and drive long-term growth.
The Home Depot, Inc.’s (NYSE:HD) sales have been impacted by the recent slowdown in the housing market, which has resulted in a decline in demand for home improvement and refurbishing projects. However, with the Federal Reserve’s recent decision to lower interest rates, the company is poised to benefit from a potential rebound in the housing market. The decline in interest rates is expected to boost housing sales, which will in turn drive demand for The Home Depot, Inc.’s (NYSE:HD) products and services. Additionally, the company’s strategic shift towards smaller repair and maintenance projects, as well as its growing focus on servicing professional customers, will help mitigate the impact of the housing market slowdown.
Overall, HD ranks 5th on our list of the best consumer cyclical stocks to buy according to hedge funds. 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.