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Home Depot Stock a Proven Gem in Low Interest Rate Environment

Last Updated September 23, 2020 1:03 PM
Gerelyn Terzo
Last Updated September 23, 2020 1:03 PM

The economy is currently grappling with a combination of recession fears and persistently low interest rates. Of these two forces, only one of them is clear for the foreseeable future and that’s low rates. The jury is still out on whether or not the economy is headed for a recession. With low rates come cheaper borrowing costs, and in fact, mortgage rates are at their most attractive level in weeks.

mortgage rates
Source: The Wall Street Journal/Freddie Mac 

One potential way to play the low interest rate environment is by investing in home-repair stocks such as Home Depot (HD), which has seen its value balloon by 33% year-to-date. Research has proven  that Home Depot is among the Dow’s top performers in a low interest rate environment.

home depot
Home Depot stock is up more than 30% year-to-date. | Source: Yahoo Finance

Rate Cuts Are Music to the Ears of Housing-Related Stocks Like Home Depot

Clearly, there are several ways to play the low rate environment, housing stocks, which have similarly rallied this year, being the most obvious opportunity.

And while Dow Jones component Home Depot may not be a secret, it could be a hidden gem when it comes to interest rate plays. Take Hershey (HSY). If the economy were to slip into a recession, investors might bet that consumers will eat more chocolate as a comfort during the down times. The concept is similar when times are good. People are not only buying homes but they are possibly refinancing and fixing up their homes, which means more trips to home-improvement retailers such as Home Depot, all of which bodes well for the stock – Wall Street concerns for margin pressure  notwithstanding.

Another thing to note about Home Depot is the duopoly that it enjoys with Lowe’s (LOW). Despite the fact that they are fierce competitors, offering many of the same exact products and services as one another, they also represent a packaged deal for many analysts on Wall Street. When it’s time to buy one, it’s also time to buy the other.

As the housing market goes in the coming years, so goes home-improvement retailers, most likely. Given today’s interest rate cut by the Fed and predictions on CNBC  from the likes of JPMorgan Asset Management for not one but two more rate cuts ahead, it’s a reasonable bet that both Home Depot and Lowe’s could ride that wave along with housing stocks.