HD

Home Depot looks to bounce from 52-week low

What's Happening

Home Depot ( HD ) fell to a new 52-week low of $64.41 on December 20, and the stock is currently down 13% on the year. A slowing housing market is pulling down the home improvement retailer, but the stock could rally following two housing-related reports due this week.

Technical Analysis

HD was recently trading at $164.16 down $51.27 from its 12-month high and $1.93 above its 12-month low. InvestorsObserver's Stock Score Report gives HD a 41 long-term technical score and a 37 short-term technical score. The stock has recent support above $163.25 and recent resistance below $175. Of the 21 analysts who cover the stock 13 rate it Strong Buy, 2 rate it Buy, 6 rate it Hold, 0 rate it Sell, and 0 rate it Strong Sell, HD gets a score of 50 from InvestorsObserver's Stock Score Report.

Analyst's Thoughts

After years of steady gains, home improvement retailer Home Depot turned bearish in September and the stock is now sitting just pennies above its 52-week low. Concerns are mounting on the housing market as the Federal Reserve continues to lift interest rates. While rates remain incredibly low on an historic basis, the recent string of rate hikes will ultimately have an impact on the housing sector and homebuilders and housing-related stocks have been under pressure. Home Depot is coming off a strong quarterly report in November with better than expected earnings and revenue, but the quarterly report was not enough to push the stock higher, and as the overall market weakened HD moved strongly lower. Given the company's recent strong report, and its upward revised forward guidance, shares should rebound nicely if the overall market finds its footing. There will be two housing reports this week on pending home sales and new home sales, and these reports will help drive sentiment on the sector. The stock's valuation has fallen to an attractive level with a forward P/E of 15.9, so the downside is likely limited at this time. Analysts see nice upside in the stock with an average price target of $208.43.

Stock Only Trade

If you're looking to establish a long stock position in HD consider buying the stock under $164. Sell if it falls below $152 or take profits if it gets to $189.

Bullish Trade

If you want a bullish hedged trade on the stock, consider a 2/15/19 140/145 bull-put credit spread for a $0.25 credit. That's a potential 5.3% return (34% annualized*) and the stock would have to fall 11.8% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider an 2/15/19 190/195 bear-call credit spread for a $0.25 credit. That's a potential 5.3% return (34% annualized*) and the stock would have to rise 15.8% to cause a problem.

Covered Call Trade

If you like the stock but wish to lower your cost basis on a new position, you may want to consider a 2/15/19 $165 covered call. Buy HD shares (typically 100 shares, scale as appropriate), while selling the 2/15/19 $165 call for a debit of $156.46, per share. The trade has a target assigned return of 5.4%, and a target annualized return of 35% (for comparison purposes only).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Originally published on InvestorsObserver.com


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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