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Home Depot (NYSE:HD) has been one of the hottest coronavirus stocks. Home Depot stock is up 30% for the year, easily outpacing the S&P 500 index. The stock has been a beneficiary of stimulus checks that spurred a wave of spending in home improvement.
Home Depot also benefited from the work-from-home economy. Homeowners began to look at their existing space and decide that maybe an open concept wasn’t great for a home office or a classroom.
But it would be selling Home Depot short to say it’s just benefiting from the novel coronavirus. HD stock had a stellar 2019, growing over 25%. And the company’s momentum was continuing to build until the Covid-19 pandemic forced Americans to push the pause button on virtually all aspects of their life.
But as days turned to weeks, many Americans decided to tackle that home improvement list. The question of the moment is does Home Depot stock have further to grow. I think the stock is a solid long-term stock, but for the rest of this year, growth investors may need to temper their expectations.
Home Depot Stock Was Ready for the Pandemic
To be fair, no company could have been totally prepared for a global pandemic. However, Home Depot had been making strides in its e-commerce business for at least a year before the novel coronavirus struck. This meant when stores were forced to close, Home Depot already had an infrastructure in place to ensure consumers and contractors could get what they needed, when they needed it and where they needed it delivered.
It’s fair to say that Lowe’s (NYSE:LOW) has upped its e-commerce game. But in the home improvement game, these two companies act like a duopoly. And it’s likely to stay that way for some time. Both businesses are largely insulated from Amazon (NASDAQ:AMZN).
Lumber Is Growing Scarce
One of the catalysts for Home Depot in 2019 came from the Federal Reserve. The Fed cut interest rates at the end of July and it started a domino effect. Homes started to sell. That got other homeowners interested in selling. But first, they had to fix up their house.
Add to this, the market for new construction was rising and you had perfect conditions for a company like Home Depot that, more than its competitor Lowe’s, has strong relations with builders and contractors.
However, the novel coronavirus has created a situation where logging companies have slowed down operations. And as this works its way through the supply chain, Home Depot is finding itself short of lumber just as consumers need it the most.
This will most likely be a short-term situation for the do-it-yourselfer who may simply switch gears to another project. For most of the company, fall weather will bring painting and other projects to the forefront. But for contractors, a lumber shortage may stall their businesses just as they were getting on their feet.
Enjoy the Holidays with a Nice Dividend
The holidays are likely to look a little different this year. And that may also work out well for Home Depot. According to the National Retail Federation, consumers spent an average of $1,050 on holiday décor and gifts.
To be fair, not all of that was in decorations. However, consumers are likely rethinking travel plans. And traditional holiday activities are likely to be cancelled to honor social distancing protocols. And that means consumers may have a bit more disposable income to deck the halls. Does this mean every house will resemble National Lampoon’s Christmas Vacation? We can only hope not.
But even if consumers decide to be a bit more subdued this year, Home Depot can still give you a nice gift. That’s because Home Depot stock has always been a value stock first, and with good reason. The company simply doesn’t miss on issuing its dividend. And that will easily continue this year.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.