It’s hard to believe there are only three weeks left in the year. But a lot can happen in three weeks. The Federal Reserve will meet in mid-December and has expressed its desire to cut interest rates further at that time.
When interest rates were cut in September, the stock market reacted extremely positively, and another cut could fuel market enthusiasm. Mortgage rates started falling when interest rates were lowered, but are now rising again. Further cuts could be key to reducing these and boosting the housing market – and, by default, housing-related industries.
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Home Depot (NYSE:HD), Opendoor Technologies (NASDAQ: OPEN)And Honestly (NYSE:W) could still benefit significantly before the end of the year, and now could be an excellent time to buy shares.
Home Depot is the largest home improvement chain in the world, with 2,300 stores in North America. It reliably reports strong performance – most of the time. But there is inflation and pressure from high interest rates, and sales are down, as are earnings per share (EPS).
High mortgage interest rates mean that fewer people are looking for a new home or putting their existing home on the market. Buying new homes comes with all kinds of home improvement projects, and those are now on hold.
In the meantime, Home Depot is doing what it can to generate growth where it can, operate with improved cost efficiency, and position itself for a strong recovery when the time comes. Some of its recent actions include expanding its supply chain with new distribution centers to reach more customers with one-day shipping and new acquisitions that target the professional customer.
There was already an improvement in the fiscal third quarter (ending October 27), including some time after the interest rate cuts. Comparable sales decreased by 1.3% compared to last year, but total sales increased by 6.6%. The quarter exceeded expectations and management raised expectations across the board.
The market was happy too. Shares of Home Depot rose after the results were announced, and are up 23% this year. That’s still underperforming the market, but it shows a lot of confidence in Home Depot’s ability to recover under better conditions. If interest rates continue to fall, Home Depot stock should rise, and it will be in a great position to continue into 2025.
Opendoor is in a terrible state since the housing market dried up. It’s an iBuyer, which means it buys houses to fix up and resell. There are a handful of other companies that have entered this industry, which has evolved with the advent of digital. However, the sheer amount of money required to purchase homes has made it a challenging business to operate in, and other businesses like it too Zillow have bent out. Opendoor is hanging in there, but with fewer properties on the market, it hasn’t been able to grow its business.
There was some progress in the third quarter. It bought 3,504 homes, had 1,006 under contract, and has 6,288 in inventory – up 64% from last year. However, interest rates are still well below the performance they showed before interest rates started rising.
This past performance should give investors some confidence in the potential for Opendoor to stage a healthy recovery. It has the foundations of a good, disruptive company, with its technically strong digital app, robust machine learning algorithms that create an attractive alternative to traditional brokers, and huge opportunity in a $1.9 trillion industry.
Opendoor shares have also risen on news of the rate cut, but are still down 53% this year. Opendoor stocks pose enormous risk, but also offer incredible potential for reward for the risk-tolerant investor.
Wayfair has been struggling for years, since the pandemic-induced growth ended. That period exposed the company’s serious and troublesome profitability problems, and in the aftermath it has failed to connect with customers and generate more growth.
In theory, this is what you love about Wayfair. The company’s premise is logical: it sells furniture online and reaches a broad target group with its various brand collections. It has excellent technology supporting the platform, with features such as viewing products in the customer’s home, and works with thousands of suppliers using the dropship model and logistics network. Because Wayfair doesn’t have to spend expensive amounts to keep goods in stock, but instead works as a platform and shipper, it has the perfect setup for strong profitability. However, it has not yet been possible to scale up profitably. Instead, the country has poured money into its development without seeing the results needed to justify it.
The market is conflicted about Wayfair and sees the dismal performance, but also the opportunity. Management made some tough decisions on costs, and the third quarter was the ninth consecutive quarter of fixed cost declines. It also had the lowest SG&A costs since 2021. It doesn’t expect a miraculous turnaround in this tough operating environment, with almost every home goods retailer under pressure. But Wayfair is doing well, considering the times.
If interest rates are lowered further, expect a positive move from Wayfair. As the economy improves, it could become a true turnaround stock. However, it is only intended for investors with risk appetite.
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Jennifer Saibil has no positions in any of the stocks mentioned. The Motley Fool holds and recommends positions in Home Depot and Zillow Group. The Motley Fool recommends Opendoor Technologies and Wayfair. The Motley Fool has a disclosure policy.
3 Stocks That Could Skyrocket Before the End of 2024 was originally published by The Motley Fool
