Home Depot navigated a challenging 2024 marked by elevated interest rates and a cautious consumer. But signs of recovery emerged as the year progressed, laying the foundation for a rebound in 2025 fueled by increased housing sales and pent-up demand in the home improvement market. Year-to-date performance: up 12% Forward price-to-earnings ratio: 25 vs. five-year average of 21.5 Our rating: Buy equivalent 1 Our price target: $440 per share HD YTD Mountain Home Depot year-to-date performance . Recap “24” Home Depot had a roller coaster year in 2024, starting slowly in a high interest rate environment before picking up steam later in the year. The stock posted subdued performance in the first half of the year as high borrowing costs weighed on expensive home improvement projects. Things started to change in March as expectations of multiple interest rate cuts from the Federal Reserve lifted sentiment and drove the stock higher. However, these gains were short-lived as investor expectations fell in May. The real turning point came in mid-September, when the Fed began its monetary easing cycle with a massive 50 basis point rate cut. This sparked optimism about housing sales, which hit a 30-year low earlier this year. Home Depot shares rose steadily, reaching an all-time intraday high of nearly $440 on November 26th. Since then, the stock has fallen more than 11% in Monday trading. Over this period, the S&P 500 remained relatively flat. Nevertheless, Home Depot is one of Jim Cramer's twelve core holdings. We initiated our position in Home Depot in early September on the assumption that falling mortgage rates could spur activity in the struggling real estate sector. Despite two further Fed rate cuts, easing by a total of 100 basis points, or 1 percentage point, in 2024, the 10-year Treasury yield remained high. Mortgage rates are based on bond yields – so home loan costs remained high, undermining expectations of a recovery in real estate development and the resulting business for Home Depot. Outlook '25 Home Depot is preparing for a comeback in 2025, with early signs of recovery already visible. The company's third-quarter results, released in mid-November, suggested that the business has bottomed out and will perform positively next year. As housing sales increase due to mortgage interest rates eventually falling, demand for home improvement projects is expected to increase. The Fed predicts two more rate cuts in 2025. Since there won't be a big increase in the number of new homes next year, people will have to buy older U.S. homes that need upgrades and repairs. Whether you're a contracted professional or a do-it-yourselfer, Home Depot remains the go-to source for home renovation needs. We choose Home Depot over competitor Lowe's because it is more focused on the professional market. Home Depot has strengthened its presence among professional contractors with its recent acquisition of SRS Distribution, a network of independent roofing and building materials dealers. Interest rates remain key to Home Depot's turnaround. If mortgage rates fall below 6%, the company's comparable sales should return to positive territory over time, reversing weakness in large projects. The prospect of further Fed easing is likely to support the stock as home improvement stocks tend to rise when interest rates fall due to an inverse relationship between them. This should be followed by profit growth at Home Depot. However, there is a risk that longer-term bond yields, which are more closely aligned with mortgage rates, will continue to rise. This could delay Home Depot's return to growth. While it's possible that Home Depot could face some tariff issues related to its exposure to Mexico, Canada and China, the retailer may be less vulnerable since more than half of its portfolio comes from the U.S. (Jim Cramer's Charitable Trust is long) . HD. A full list of stocks can be found 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.
A Home Depot store in Washington, DC, USA, on Monday, August 12, 2024. Home Depot Inc. is scheduled to release earnings results on August 13.
Ting Shen | Bloomberg | Getty Images
Home Depot have overcome a challenging 2024 marked by high interest rates and cautious consumers. But signs of recovery emerged as the year progressed, laying the foundation for a rebound in 2025 fueled by increased housing sales and pent-up demand in the home improvement market.