The pandemic is far from under control, and fears about rising coronavirus cases due to the delta variant are causing some investors to worry about a correction in the near term. While the timing of a market crash is unpredictable, investors can take the right actions today in order to position their portfolios for whatever tomorrow holds.
No matter what happens over the next few months, a low-risk stock that should be on your radar is Home Depot (NYSE:HD). Let’s find out why.
Although Home Depot’s revenue and profit steadily rose every year over the past decade, the leader in home-improvement retailing absolutely thrived as the pandemic took hold of the economy in the spring of 2020. Flush with cash from large amounts of government stimulus and limited on spending options, consumers turned their attention to renovation projects.
Sales in fiscal 2020 (ended Jan. 31) jumped 19.9% year over year, and the strength in the housing market has propelled the company’s growth even more. The first quarter of 2021 saw same-store sales (or comps) soar 29.9% in the U.S. For a company of Home Depot’s size, this is remarkable.
It really doesn’t matter what economic environment we are in. If the economy takes a turn for the worse, homeowners will look to spruce up their living quarters instead of considering a move. On the contrary, with interest rates still at historic lows and home prices rising, people are more inclined to think about changing locations.
All of this, coupled with the fact that many Americans are rethinking their living situations with the pervasiveness of remote work, supports demand for Home Depot‘s products.
Protected from disruption
The company’s One Home Depot initiative, launched in 2017 to create a seamless interconnected shopping experience, is paying off. In the most recent quarter, 55% of online orders were fulfilled at a store. This metric is very important as it explains how Home Depot has been able to defend itself from the likes of e-commerce behemoth Amazon.
Because home-improvement products are big, bulky, and urgently needed by customers, Amazon hasn’t been able to disrupt the leader in the industry. This is especially true for Home Depot’s professional customers (or Pros), who usually need a certain item as soon as possible so that they can return to the job site.
An encouraging sign is that Pros’ backlogs are growing as the economy reopens and consumers feel comfortable letting contractors into their homes to work on larger projects. This is in stark contrast to last year, when do-it-yourself (DIY) customers drove much of Home Depot’s gains.
Americans will always love to spend money on their homes, and the company’s ability to satisfy the critical needs of both the Pro and DIY customer supports its low-risk nature.
An attractive valuation
Home Depot’s stock has lagged the S&P 500 over the past 12 months, and its price-to-earnings ratio of just 24 is a significant discount when compared to the broader market. This type of dislocation is surprising, particularly given Home Depot’s long history of success in such an important industry.
The company’s powerful brand recognition, scale, and status as an essential partner for its customers give it competitive advantages that will support its prospects for years to come. Home Depot is a crucial player in the housing market, and the fact that its business boomed during the pandemic tells you everything you need to know about its staying power.
If you’re worried about a market crash, scoop up shares of Home Depot.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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