We recently published a list of Jim Cramer on Microsoft and Other Stocks. In this article, we are going to take a look at where Home Depot (NYSE:HD) stands against other Jim Cramer’s stocks.
Jim Cramer, host of Mad Money, discussed Tuesday’s market action, noting that the rally following President-elect Donald Trump’s victory temporarily slowed down as Wall Street begins to assess the potential effects of broad tax cuts on the bond market. Cramer pointed out that while the stock market typically reacts positively to tax cuts, there’s a catch.
“What if the Treasury doesn’t have the money? Then just like everybody else, the government has to borrow to make up the difference and it borrows by selling bonds, trillions, trillions of dollars worth of bonds.”
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Even though these tax cuts have not yet materialized, Cramer observed that the bond market seems to be sending a warning signal. He asked whether the country could face an interest rate reckoning if it borrows too much, and pointed out that this is a concern on many minds right now. Cramer continued by suggesting that perhaps investors have been too focused on the stock market rally, putting the cart before the horse, with the horse being the bond market.
Cramer acknowledged that stocks have surged since Trump’s election, but the rally has been uneven. While many investors expect tax cuts across the board—on corporate income, individual income, and capital gains—no one is exactly sure what form these cuts will take. However, it’s widely anticipated that overall taxes will be lower. Cramer noted:
“If it’s at all like 2016 when Trump first became president, the wealthy will be the biggest beneficiaries. And when rich people get more money, the theory goes they invest in stocks, create new businesses… It has always worked for the stock market.”
But Cramer warned that there’s another side to the equation: the bond market. On Tuesday, it became clear that investors in bonds were reacting nervously to the possibility of unfunded tax cuts. Interest rates surged across all maturities, signaling a shift in sentiment. Cramer emphasized that when you look at how large and fast the bond market’s move has been, it highlights a critical concern: the federal government is already borrowing trillions of dollars from the bond market, and this is happening before any tax cuts have even taken effect. He explored the possibility that this is why the bond market is responding so negatively, making it more difficult for the stock market to keep climbing at the same pace.
“If you believe we’re about to get big tax cuts, remember that somebody eventually has to pay for the missing tax receipts, as boring as that is, even if that means the government borrows a lot more money, causing bond yields to spike. We can only hope the stock market goes back to ignoring long-term interest rates or that those rates come back down in response to some benign inflation numbers.”
Our Methodology
For this article, we compiled a list of 8 stocks that were discussed by Jim Cramer during the episode of Mad Money on November 12 and listed the stocks in the order that Cramer mentioned them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A home improvement store overflowing with a variety of products and supplies.
The Home Depot, Inc. (NYSE:HD)
Cramer talked about how The Home Depot, Inc. (NYSE:HD) reported results that surpassed most expectations yet its stock came down because of the bond market.
“Consider the stock of Home Depot. The despot reported better-than-expected revenues, earnings, and same-store sales. They came out at 6:00 AM, stock quickly jumped from $408 and changed to $420. That’s in that market, the Wild West market. But then the bond market intruded, bringing the stock all the way down to $403. Now, it didn’t help that management made some comments on the conference call about how well Home Depot can do when mortgage rates fall to 6%. Any close listener would realize that, with long rates on the rise, again, the opposite will happen. Plus, heaven forbid, we get a hot consumer price index number tomorrow because the one thing saving us from the bond market is the Federal Reserve. But the Fed can’t keep cutting rates if inflation picks up, right?
The Fed controls short rates, which tend to align themselves with home equity loans, vital to Home Depot’s rehab and renovation business. Still, I like this company and we told investing club members that we’d be buyers of Home Depot and we don’t think the negativity’s justified. We grabbed someone in the trust in the morning because we thought the results were just too good to ignore. To me, Home Depot is the single best stock to buy when the Fed’s cutting rates.
I think we got a gift when the stock took a header off today’s bond market action. Once the despot earnings get moving, it tends to really fly and today’s earnings show the momentum is now with the Home Depot bulls like me even if the stock only fell five points to $403 where it was right after the mortgage comment was made. If this gets below $400, I say buy, buy, buy.”
Home Depot (NYSE:HD) is a leading and widely recognized retailer in the home improvement industry. We discussed the company’s third-quarter results in our article, 10 Stocks on Jim Cramer’s Radar.
During its third-quarter conference call, Home Depot (NYSE:HD) management discussed how the current high interest rate environment is putting pressure on larger, typically debt-financed remodeling projects, as well as existing home sales. They noted that since the rate cut in September, mortgage rates have risen by approximately 60 basis points. This increase continues to affect housing turnover, which has fallen to just around 3%—the lowest level in 40 years. Management also suggested that while conditions are tough, they believe the worst may now be behind them.
Overall, HD ranks 2nd on our list of Jim Cramer’s stocks. While we acknowledge the potential of HD as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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