Home improvement stores have been a rare exception among retailers in the first half of the year, actually benefiting from stay-at-home orders aimed at curbing the spread of COVID-19. With newfound free time, along with unexpected stimulus checks and temperate spring weather, many consumers have made the most of the situation by sprucing up their homes.
Looking ahead, consumers completing do-it-yourself (DIY) projects, coupled with pent-up housing demand, look like they will be supporting home spending in the second half of the year. Furthermore, a growing number of people moving away from cities in search of affordable living lends itself to more home improvement store visits as they deck out their new homes.
The three home improvement stocks outlined below are all trading near their 52-week high, just months after setting fresh 52-week lows. Let's take a more detailed look at each retailer and discuss several tactical trading ideas.
The Home Depot, Inc. (HD)
Dow component The Home Depot, Inc. (HD) operates as a home improvement retailer, targeting DIY and professional customers. Although the Atlanta-based company's bottom line contracted by 8% in the first quarter due to increased pandemic-related costs, its revenue for the period grew by 7% on the back of strong interconnected sales through both its warehouse-format stores and digital channels. The Home Depot stock has a $268.83 billion market capitalization, offers a 2.49% dividend yield, and is trading 52.42% higher over the past three months as of June 17, 2020.
A recent pullback in the stock provides a buying opportunity at the $240 level, where price encounters support from the February high. As a golden cross indicates that a new uptrend is in place, traders should consider using a trailing stop to let profits run. To implement this trade management strategy, place an initial stop order beneath the June 15 low at $234.31 and raise it under each subsequent higher swing low.
Lowe's Companies, Inc. (LOW)
Lowe's Companies, Inc. (LOW) operates as a home improvement retailer in North America, selling a range of products for construction, maintenance, repair, remodeling, and decorating. Earlier this month, Gordon Haskett analyst Chuck Grom upgraded the retailer's stock to "Buy" from "Hold," saying that consumers will be investing in DIY projects for many quarters to come, adding that recent housing market dislocation will likely be short lived. On the earnings front, Lowe's, which issues a 1.72% dividend yield, has exceeded Wall Street expectations for the past four consecutive quarters. Lowe's shares have surged 82.24% higher in the past three months, outperforming the home improvement industry average over the same period by 22% as of June 17, 2020.
The home improvement retailer's stock completed a remarkable V-shaped recovery last month, registering a fresh all-time high in the process. More recently, a wave of profit taking eased this week at $125 – an area on the chart that finds support from the pre-pandemic high. Active traders who buy at these levels should place a stop-loss order underneath the June low at $123.09 while setting a profit target at least three times risk. For instance, if using a $9 stop, target $27 of upside.
Floor & Decor Holdings, Inc. (FND)
Floor & Decor Holdings, Inc. (FND) specializes in a variety of tile, wood, laminate, and natural stone flooring products, as well as decorative and installation accessories. Despite several store closures due to the health crisis, the $5.79 billion hard surface flooring retailer reported first quarter top- and bottom-line growth of 16.3% and 20.7%, respectively, thanks to a successful shift to curbside pickup collections. As of June 17, 2020, Floor & Decor stock has climbed 27% over the past month and nearly 90% in the past three months.
Floor & Decor shares have trended upward since early April, with the stock crossing back above its 200-day simple moving average (SMA) in mid-May. This week's retracement to a closely watched horizontal trendline at $51 provides a high-probability entry point at crucial support. Furthermore, buyers may benefit from a short-covering rally, given that almost 10% of the company's float is held short. Consider booking profits by using a 20-day moving average (green line) as a trailing stop. For example, exit trades on the first close below the indicator.