Wall Street’s Home Improvement Rally: 3 Stocks to Track as Summer’s DIY Season Kicks Into Gearby@dmytrospilka
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Wall Street’s Home Improvement Rally: 3 Stocks to Track as Summer’s DIY Season Kicks Into Gear

by Dmytro SpilkaApril 5th, 2024
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Travel and tourism, live events, and food and drink stocks are all prone to strong market rallies as temperatures warm and days become longer. 
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The old Wall Street saying ‘sell in May and go away’ may be supported by historical market performance, but that doesn’t mean investors can’t make summer profits from carefully selected stocks.

Certain stocks are better disposed to outperformance over the summer months. Travel and tourism, live events, and food and drink stocks are all prone to strong market rallies as temperatures warm and days become longer.

Another major beneficiary from those summer months is DIY stocks. So, rather than selling in May, should investors ride the summer out by backing home improvement firms to shine? There could be some logic to diversifying the right blend of DIY firms for your summer portfolio.

In days of yore, selling in May traditionally took place as the city essentially closed for the summer, and wouldn’t fully reopen again until St Ledger Day–which is a horse race that occurs in mid-September.

Interestingly, there appears to be some merit to this philosophy event today. According to eToro research, there’s an average 1.11% difference across 16 global exchanges in favor of the monthly returns gained between November and April, as opposed to between May and October.

However, taking the recent performance of Home Depot (NYSE:HD) as an example, the stock delivered growth in four of the past five periods between the beginning of May and St Ledger Day–with a rally of 26.4% recorded in 2020.

This indicates that some home improvement stocks can perform well during those summer market slowdown periods, and for investors, they can represent a seasonal investment option that can keep portfolios profitable all year round.

But which DIY stocks could offer the best potential moving into summer 2024? Let’s explore 3 of the strongest options on Wall Street today:

1. Home Depot Inc

Equipped with a market capitalization in excess of $350 billion, Home Depot (NYSE:HD) is a DIY stock with a massive market presence.

Home Depot is also a stock that commands some serious revenue. Having reported $34.79 billion in revenues for 2023, the home improvement giant actually experienced a 2.9% year-on-year dip which fell in line with analyst estimates. However, Q4 2023 revenue fell above estimates, indicating a strong end to a “year of moderation,” as described by CEO Ted Decker.

“Home Depot is one of the world's largest home improvement retailers,” explained Maxim Manturov, head of investment research at Freedom Finance Europe. “During the summer, homeowners often undertake a variety of do-it-yourself projects such as landscaping, renovations and home improvement projects, which can boost Home Depot's sales.”

There are also signs that Home Depot is expanding its home improvement repertoire. In March, the firm announced a major $18.3 billion acquisition of SRS Distribution, a key building projects supplier that serves professional roofers, landscapers, and pool contractors among its core customers.

With 760 warehouses and over 4,000 trucks to deliver its goods, the acquisition of SRS Distribution is set to help Home Depot build into the world of housing professionals to supplement its core DIY demographic and can be interpreted as a statement of intent for future growth.

2. Lowe’s Companies Inc

Despite a mixed fourth-quarter earnings report at the end of last year, Lowe’s (NYSE:LOW) has surged more than 10% on Wall Street in the first quarter of 2024. There’s every indication that this year is shaping up to be a big one for the home improvement specialists.

While Lowe’s beat expectations for EPS and revenue, the firm also reported a drop of over 6% in comparable sales and cut guidance for 2024 significantly. This highlights the company’s outperformance and uncertainty over what’s to come with market conditions becoming increasingly unpredictable in the macroeconomic environment.

However, this uncertainty is looking like a fresh opportunity for investors ahead of the summer, as early indications suggest that both housing inventory and existing home sales are beginning to increase in 2024. With the expectation of lower interest rates arriving in time for the second half of the year, we’re likely to see the housing market gather speed with cheaper mortgage rates–paving the way for a renovation and DIY flurry.

Crucially, Lowe’s is a dividend-paying stock, and this means that a clearing housing market could see investors directly benefit from the dividends paid by the home improvement giant.

3. Sherwin-Williams Co

Unlike the more general DIY stocks we’ve covered so far, Sherwin-Williams (NYSE:SHW) is a paint specialist that can experience an acceleration of sales when the warm summer months pave the way for more painting and repair projects among homeowners.

The stock itself has been performing well in 2024, having grown almost 10% in the first quarter. Additionally, the stock rallied more than 30% in 2023, illustrating the level of growth that the company has consistently found. As for the period between May and St Ledger Day last year, SHW delivered growth of more than 10%.

Sherwin-Williams appears to have a history of outperformance, and the firm’s Q4 2024 revenues of $5.25 million represent year-over-year growth of 0.4% that beat Zacks Consensus Estimates.

As a result of its impressive revenue growth, some analysts are revising their estimates upwards for SHW for the year ahead, while Zacks Consensus Estimate has increased by $0.05 to $11.49 per share for 2024. This signifies the relevance that the stock could carry over the summer months.

Cautious Optimism Amid Uncertainty

While DIY stocks have proven to be strong performers despite the ‘sell in May’ mantra that some traders continue to hold dear, their relative strength in 2024 is likely to be determined by wider macroeconomic circumstances.

With the Federal Reserve’s switch to a dovish monetary policy, clearing economic conditions are likely to generate more housing market activity and a greater flurry of DIY activity over the coming summer.

However, nothing is certain when it comes to the economy, and the Wall Street performance of many stocks this year is likely to hinge on gathering tailwinds. With this in mind, investors can find strength in adopting a cautiously optimistic approach to building their summer portfolios and maximizing their earnings potential.