We recently published a list of The 10 best consumer goods stocks to buy, according to hedge funds. In this article, we take a look at where The Home Depot, Inc. (NYSE:HD) is performing compared to other stocks in the Consumer Discretionary sector.

Many experts and analysts are concerned about a decline in consumer spending. However, reports show that consumer behavior is changing rather than slowing down. According to a report by Colliers Retail Market Intelligence, retail footfall increased by 4.4% in June, indicating strong consumer activity despite stagnant overall sales.

While furniture and home improvement stores saw declines due to fewer bulk purchases and a sluggish housing market, grocery stores and clothing retailers fared better. Grocery sales rose 1.7%, with footfall increasing nearly 5% as consumers watched their budgets despite cost-cutting. Clothing sales also rose 3.8%, driven by early back-to-school shopping and wardrobe refreshes, leading to an 8.3% increase in footfall.

In July, consumer spending showed a slight increase compared to June, with gains in 10 of 12 retail categories, according to the CNBC/National Retail Federation (NRF) Retail Monitor. Retail sales, excluding autos and gasoline, rose 0.7% month-over-month, up slightly from June’s 0.5%. However, year-over-year growth slowed to 0.9%, down from 3.4% in June.

Core retail (excluding restaurants) posted a 1% month-on-month increase. Key developments in this sector included a 3.4% increase in gas station sales and a 2.1% increase in restaurant spending compared to the previous month. In contrast, the health, personal care and garden supplies sectors posted slight declines.

The June and July data together suggest that consumer spending remains stable, supported by strong household finances and a strong labor market. While some industries, particularly furniture and home improvement, are struggling due to falling consumer confidence and a sluggish housing market, other categories are performing well.

The data suggests that consumers remain willing to spend, particularly on essential and seasonal items, although they may be more cautious about making larger purchases. Despite some areas of decline, the overall retail environment appears stable and consumers continue to spend where they see fit, suggesting a cautiously optimistic outlook for the remainder of 2024.

Current information on interest rates and potential impacts on consumer spending

At the July meeting, Fed Chairman Jerome Powell stressed that the Fed remains focused on maximum employment and stable prices. He noted significant progress in the economy, with inflation falling from 7% to 2.5% and the labor market balanced with a low unemployment rate of 4.1%. The Fed decided to keep interest rates stable in the range of 5.25% to 5.5% and continue to reduce its securities holdings to maintain a hawkish stance aimed at balancing demand with supply and reducing inflationary pressures.

The story continues

Powell mentioned that while the Fed has eased, it is not yet ready to cut rates. It needs more consistent positive data before it can take such a step, possibly as early as September. According to the CME Fed Watch tool, all experts expect rate cuts in September. 50.5% of experts predict a 25 basis point (bp) rate cut, while 49.5% expect a 50 basis point cut.

Interest rate cuts generally have a positive effect on consumer spending. When interest rates are cut, borrowing becomes cheaper, which can lead to increased borrowing and spending by consumers. This increased affordability can boost consumer confidence and encourage spending on non-essentials. That’s a good place to start for non-essential stocks. So let’s look at the 10 best non-essential consumer goods stocks to buy, according to hedge funds.

Our methodology

For this article, we used Finviz’s stock screener to identify over 50 large-cap stocks in the consumer discretionary space. We then narrowed our list down to the 10 stocks most held by institutional investors in the first quarter and listed the stocks in ascending order of hedge fund sentiment.

Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).

A hardware store full of products and accessories with a huge selection.

Home Depot, Inc. (NYSE:HD)

Number of hedge fund owners: 70

The Home Depot, Inc. (NYSE:HD) is a leading American multinational corporation specializing in the home improvement industry. As the largest home improvement retailer in the United States, the company offers a wide range of products, including tools, building materials, appliances, and garden supplies.

Home Depot (NYSE:HD) offers both in-store and online shopping. The company’s online presence includes sites such as homedepot.com, homedepot.ca and homedepot.com.mx, as well as specialized sites such as blinds.com, justblinds.com and americanblinds.com for custom window coverings.

In addition, Home Depot (NYSE:HD) operates thecompanystore.com for textiles and décor and hdsupply.com for maintenance, repair and operations (MRO) products and services.

With a $5.5 billion stake, 70 hedge funds held positions in Home Depot (NYSE:HD) in the first quarter. As of the first quarter, Fisher Asset Management is the company’s largest shareholder, holding a position worth $3.445 billion. The company ranks 10th on our list of the best consumer goods stocks to buy, according to hedge funds.

Since going public in 1981 with just six stores, Home Depot (NYSE:HD) has grown into a major player in the home improvement sector. Today, the company operates over 2,300 stores across the United States, Canada, and Mexico. The company’s stock price has posted an astonishing 112,364% return since its IPO on August 9, underscoring its remarkable growth and success.

Home Depot (NYSE:HD) is the largest home improvement and home improvement retailer in the United States, benefiting from its extensive network and well-established business model. One of the company’s key advantages is its stable focus on home improvement projects rather than focusing on changing consumer trends in fashion or electronics. This allows the company to maintain stable performance and continually increase dividends while buying back shares. The company’s strong position in the market makes it a reliable choice for investors.

Home Depot (NYSE:HD) is well positioned for future growth, especially as the housing market shows signs of recovery. With the Federal Reserve expected to cut interest rates starting in September, borrowing costs will fall, which could spur home purchases and renovations. Lower mortgage rates and easier access to home equity loans will likely encourage both home purchases and renovation projects, benefiting the company.

In addition, Home Depot (NYSE:HD) is expanding its market share among professional contractors, a critical segment for its growth. This expansion was further aided by the March acquisition of SRS Distribution, a leading roofing, landscaping and pool distributor. This acquisition opens access to a $1 trillion market and potentially improves the company’s presence and growth potential.

Total HD takes 10th place on our list of the best consumer goods stocks to buy according to hedge funds. You can visit The 10 best consumer goods stocks to buy, according to hedge funds to see the other consumer goods stocks that are on hedge funds’ radar. While we recognize HD’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than HD but trades at less than 5x earnings, read our report on the cheapest AI stock.

Read next: Analyst sees a new $25 billion ‘opportunity’ for NVIDIA and Jim Cramer recommends these 10 stocks in June.

Disclosure: None. This article was originally published on Insider Monkey.