The stars finally appear to be aligning for Home Depot in 2026, one of seven out-of-favor portfolio stocks that Jim Cramer has labeled a “buy.” Although shares have fallen nearly 11% since the start of the year, three recent developments point to a recovery in the construction market. 1. November's lower-than-expected consumer price index (CPI) suggests further interest rate cuts from the Federal Reserve next year. Although Federal Reserve Chairman Jerome Powell planned three rate cuts in 2025 and three more in 2024, he was cautious and data-dependent. However, Powell's term as Fed chief ends in May. Investors are betting on more dovish Fed leadership once President Donald Trump has the choice to succeed Powell. Trump is not afraid to demand lower interest rates. Mortgage rates, which tend to track the 10-year Treasury yield, have not yet fallen significantly enough to revive a severely faltering real estate market. Nationwide, the average 30-year fixed-rate mortgage is still over 6%. Home Depot's success depends largely on lower interest rates and buoyant housing sales, both of which could be on the way. 2. While housing costs, which account for about a third of the total CPI, rose 3% year-on-year in November, there are signs of moderation in property prices in the private sector. Lennar's fourth quarter fiscal 2025 results showed that home prices could potentially fall to pre-Covid levels. The builder said the average home sale price in the fourth quarter was $386,000, compared to the estimate of $383,900. For all of 2025, the average sales price was $390,900, down from the $394,300 price in 2020 before Covid premiums drove prices to a pandemic-era high of $479,900 in 2022. Lennar said average sales prices are expected to fall to $365,000 to $375,000 in 2026. Lennar said federal officials have begun discussions with builders to develop solutions. Falling home prices combined with potentially lower interest rates are a great sign for Home Depot. 3. In another positive signal for Home Depot, Citi upgraded Sherwin-Williams stock to Buy, with analysts citing a better outlook in 2026. “We believe existing home sales could be sensitive to small positive changes in both mortgage rates and consumer confidence,” the analysts wrote in a Dec. 18 note to clients. Citi said the paint maker “tend to outperform as existing home sales emerged from periods of multi-year lows.” Jim said if this is the forecast for Sherwin-Williams, peer Home Depot is also a buy. However, Citi analysts lowered their price target on Sherwin-Williams to $390 from $392. Still, this marks a nearly 20% increase from Friday's close. (Jim Cramer's Charitable Trust is long-HD. See a full list of stocks here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation's portfolio. If Jim discussed a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. THERE ARE NO fiduciary duty or duty IN RECEIVING YOUR INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.