Storm Watch 2022: Time to Stock Up on Home-Improvement Shares?
Accuweather delivered its forecast for the 2022 storm season in April, and the season looks to be a whopper. At least 20 major storms are predicted, marking the seventh year in a row of above-average Atlantic hurricane activity. Home-improvement giants Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW) are on track for another banner season following gains over the last five years.
Home-improvement retailers continue to see brisk business from homeowners and professional builders alike. These stocks seem poised for a repeat performance of recent gains – which could be bigger than ever this year – and position investors for long-term success in this and storm seasons yet to come.
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The 2021 storm season benefited both companies
Home Depot and Lowe’s both posted new all-time-high share prices in October and November of 2021 as the storm season subsided. Home Depot doubled its share prices from a low in March of 2020 to the following year, and Lowe’s saw a 200% gain in the same time period. Both companies reached all-time highs over three times greater than the March 2020 value of their stocks by the end of last year’s storm season.
These gains, coming during a turbulent time as the world deals with the fallout of a global pandemic and the resultant supply chain turmoil, show the resilience not only of the market but also of individuals and businesses in storm-hit areas. Home Depot and Lowe’s understood the desire of those stuck at home to work on home improvement projects during the pandemic, and they have proven ready to assist with rebuilding in the wake of natural disasters that occur each year.
Home Depot and Lowe’s stand ready to weather the storm
With 30% of the market share in home-improvement retail between them, these two companies have the financial backing to tackle supply chain woes and materials shortages head-on. Lowe’s and Home Depot mobilized to secure the tools and supplies needed for megastorms Dorian in 2019 and Ida in 2021, and posted gains following those events while building goodwill in the communities they serve.
Home-improvement projects continue unabated as home values continue to trend upwards, and investment by homeowners or purchasers looking to repair and flip homes remains strong. This core annual business, combined with the likelihood of increased share prices later in the year, helps make now a smart time to pick up shares of the two market leaders.
The weather is sometimes a fickle mistress
The further the weather forecast gets from its present date, the more unreliable it becomes. Accuweather has a strong record of getting its storm forecasts right, but even advanced modern meteorological modeling has its outliers. The predicted storm season may fail to appear, or at least be milder than anticipated.
Relying on a prediction to build another prediction is a risky house of cards as the old “butterfly effect” is always in play. Additional supply chain woes, including unforeseen events like the Evergreen shipping disaster of last year, could derail earnings for Home Depot and Lowe’s. Similarly, any large enough shock to lumber supply, such as record wildfires, could have a greater impact than the increased demand of a strong storm season.
Both companies can deliver long-term gains if trends continue
Seven years of above-average storm forecast trends seem unlikely to abate anytime soon, especially when signs already point to another strong storm season. The world continues grappling with pandemic waves, but many industries have found a balance and sense of some normalcy following the past two and a half years of outbreaks.
These companies have a large market cap and control 30% of their market, positioning them well to handle unforeseen supply chain or inventory shortages. The spring season is likely to be a good time to pick up new shares ahead of the oncoming storm season, when Home Depot and Lowe’s stock is much more likely to price higher.
Those currently holding shares may wish to increase their investments, or at the least, hold onto them until the end of this year’s above-average season and wait for next year’s forecast before selling. If trends hold, another three to five years of gains may well be on the horizon.
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Fool contributor Nicholas Robbins holds no financial position in any investments mentioned here. The Motley Fool owns and recommends Home Depot. The Motley Fool recommends Lowe’s. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
