Whether flipping houses or putting in a new kitchen, home improvement shows' mainstream popularity has bolstered the do-it-yourself (DIY) market. The pandemic also bolstered home improvement activity as consumers had the time and money to renovate, remodel and revamp their homes.
As the housing market heats up, more consumers remodel and update their homes to boost values. These tailwinds have driven home improvement stocks higher since the pandemic lows. This article should provide additional insights into the industry so you can make a more informed decision when investing in a home improvement company.
Basics of the Home Improvement Industry
Let's face it, everything ages. Homes are no different. Just like the aging population is a tailwind driving the demand for healthcare, aging homes bolster demand for home improvement companies that sell products and services. According to Zippia, 59% of the homes in the U.S. were built before 1980, and 92% were built before 2000.
In 2021, the most popular home remodeling projects were painting interiors of homes, bathroom remodeling and installation of smart devices. The growth of social media and DIY media programs hasn't slowed down. When home prices climb, the demand to renovate and remodel existing homes also rises.
The home improvement market was $342 billion in 2022. It's projected to grow at a compound annual growth rate (CAGR) of 6.7% between 2022 to 2030. The home improvement industry comprises companies that provide products, appliances, building materials, tools, supplies and services to help enhance, repair and upgrade residential properties. From home improvement suppliers to a home improvement depot, these companies help contractors and DIYers to get the job done.
A strong housing market is a crucial tailwind for the top home improvement companies in the USA. While household products are consumer staples, home improvement falls into the consumer discretionary category. When economies get too hot as housing prices rise too far out of reach, it tends to trigger homeowners to renovate to help boost values. The opposite also holds true: home improvement companies face pressure when the housing market cools. Rising interest rates can cool down the demand for home improvement as the housing market cools down when financing costs rise.
Trends Driving the Home Improvement Industry
Several secular trends drive the sustained growth of the home improvement industry and top home improvement companies in USA. The aging of most homes is a key driver. As homes age, they will need repairs and renovations to maintain and improve their values. Rising homeownership rates also tend to drive the home improvement market as homeowners invest in maintaining and protecting the value of their largest investment.
The growing adoption of sustainability and eco-friendliness will continue to grow the demand for energy-efficient homes, green building materials, smart appliances and connected homes. Smart home technology also gains interest as sensors and connected devices enable automation, access and monitoring of various home functions, including enhanced security, energy monitoring and remote climate controls.
3 Best Home Improvement Stocks
Here are three of the top home improvement companies to pay attention to. This list is in no particular order or ranking. You will likely recognize this list of home improvement companies since they are household names. These home improvement vendors cater to both professionals and DIYers.
The Home Depot Inc.
The Home Depot Inc. NYSE: HD is one of the largest home improvement companies on the planet, operating over 2,300 stores across the U.S., Mexico and Canada. The company generated $157.4 billion in annual revenues in 2022, with an average ticket of $90.36 on 1.666 billion transactions. Home Depot has over 500,000 workers. The average store is nearly 105,000 square feet, offering over 35,000 products and over one million online products. It has 90 distribution centers across the U.S. The company generated $627.17 per square foot in 2022. Its customers range from professional contractors to DIY consumers.
Home Depot thrives during economic expansion periods but does face pressure during economic contraction periods as consumer spending recedes. The company manages inventory exceptionally well, utilizing its digital shelf replacement tool that reduces out-of-stock rates by 30%. It enables the company to keep its shelves stacked with relevant and in-demand items to accommodate its customers and keep them coming back consistently.
Home Depot stock has a five-year performance of 55.6% with a 2.93% annual dividend yield as a blue-chip stock. The company has raised its dividends for more than 12 consecutive years. You can find Home Depot analyst ratings and price targets on MarketBeat.
The Sherwin-Williams Company
The Sherwin-Williams Company NYSE: SHW is the brand for paints worldwide. The company has been manufacturing and distributing paints and coatings since being founded in Cleveland, Ohio, in 1866 by Henry Sherwin and Edward Williams.
The company serves many markets, including residential, home improvement, industrial and commercial. Its products beautify and protect homes, buildings, vehicles and other assets. While the company's products occur for commercial and industrial purposes, interior painting of homes was the most popular home improvement project in 2021. It's something that DIYers can delve right into. Annual revenues grew by over $22 billion in 2022.
Sherwin-Williams stock has a five-year performance of 81.75% with a 1.05% annual dividend yield. MarketBeat features Sherwin-William analyst ratings and price targets.
Stanley Black & Decker Inc.
Stanley Black & Decker Inc. NYSE: SWK offers home improvement tools to complete projects. Regarding tools, Stanley Black & Decker is one of the largest manufacturers. It also offers storage and security solutions. It also operates under various brands, including Stanley Black & Decker, Craftsman, DeWalt, Cub Cadet, Troy-Bilt and Hustler. Its tools and outdoor segment accounts for 85% of its total revenues. Its industrial segment accounts for 15% of total sales.
The company generated nearly $17 billion in revenues in 2022, but profits turned into losses by the end of the year. The company lowered its 2023 earnings guidance to $0.93 per share but forecasted a large rebound to $5.04 in 2024. High inventory levels and high manufacturing costs impacted the lowered guidance. Inventory reduction drives margin compression.
It expects normalization to occur near the end of 2023, leading to a strong recovery in 2024. Stanley Black & Decker stock has a five-year performance of down (39%) with a 3.71% annual dividend yield. Check out Stanley Black & Decker analyst ratings and price targets on MarketBeat.
How to Choose Your Investments
When choosing your investments, perform both fundamental and technical analysis during your research. Fundamental analysis requires you to research the company's operations and financials. It will help if you read through the company's recent earnings report, conference call transcripts and forward guidance. It also helps to read research reports and check for analyst upgrades and articles on MarketBeat and learning about whether you want a growth or income stock, or both. You should be able to explain the underlying business and its growth trajectory.
Technical analysis requires you to analyze the price action and history, which you can learn on candlestick charts. Use various price indicators like moving averages with momentum indicators like stochastic. Ensure you know the stock's current trend and support and resistance levels. It also helps if you spot bullish patterns like ascending triangles, consolidation breakouts and inverse head and shoulders. Technical analysis visualizes where a stock's price has been and the potential for where it can go. Both types of research are essential when choosing investments for your brokerage account or IRA account.
Pay Attention to Interest Rates
The consumer price index (CPI) is the inflation gauge. If the CPI rises too much, then the U.S. Federal Reserve takes action by raising interest rates. The home improvement market tends to waiver when interest rates rise.
It has a domino effect that also sends technology stocks lower. When interest rates rise, it causes mortgage payments to rise. Then, mortgage applications fall, which in turn causes demand for home purchases to fall, leading to weak housing starts. As home-buying activity falls, so does the demand for home improvement products and services, which can cause home improvement stocks to fall.
Be aware of when interest rates stabilize or get cut; the opposite can also happen. Falling interest rates can lead to more home-buying demand as financing costs get cheaper, resulting in rising home improvement activity (again).
Here are answers to some frequently asked questions.
Are home improvement stocks a good buy right now?
This largely depends on your holding time horizon. Housing prices have historically risen as the growing population will continue to need homes. Aging homes require repairs and improvements, driving home improvement stocks. Home improvement stocks may be a good buy when interest rates stop rising or even start to fall.
What are the best home improvement stocks to buy right now?
The largest home improvement retailer is Home Depot. Keep the Home Depot stock ticker on your watchlist if you're looking for the biggest and arguably the best. If you want to diversify into specific parts of home improvement, like paints, then Sherwin-Williams can be considered one of the best stocks.
What is the largest home improvement company?
Home Depot is the world's largest home improvement company, with sales reaching $157.1 billion in 2022. It operates over 2,300 stores carrying more than 35,000 products. The average Home Depot store is 105,000 square feet, and we highlighted it as the first of three stocks in this article.
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