This top Dow stock is down 24% in 2022. Is it a smart buy in 2023?


The Dow Jones Industrial Average The index fell 9% year-to-date in 2022. Investors often turn to the Dow as a bellwether for how the stock market is doing. Plus, owning a portion of one of the most successful businesses out there can make for a solid investment strategy. In fact, over the past 10 years, the Dow has tripled in value.

Within the index, readers may want to focus on one company in particular as a potential portfolio addition. Continue reading to see if Home Depot (HD HD -0.13%)A top Dow stock that is down 24% in 2022 makes for a Smart purchase Today.

Don’t question the quality

With trailing-12-month sales of $157 billion, Home Depot is the clear leader in the massive home-improvement industry. The business has enjoyed tremendous success catering to both DIY and professional customers, helping them complete any renovation project they are working on with the right tools, supplies and guidance.

Although Home Depot has grown strongly throughout the pandemic, it has seen its profits drop dramatically. In the most recent quarter (approx. 3 2022, ended October 30), revenue and same-store sales increased 5.6% and 4.3%, respectively, compared to the prior-year period. To be fair, this is still respectable growth in the macro environment.

Speaking of the economy, many investors are concerned about how the cooling housing market will affect Home Depot’s business. A 30-year fixed mortgage rate of 6.5%, the highest level in a decade, has certainly hurt rising home values ​​in the US.

But shareholders shouldn’t worry at all about Home Depot’s ability to weather any near-term storms. If a US official enters recession This year, it will definitely hurt new home sales. But this same situation may encourage these people to focus on renovation projects instead. And that will keep demand relatively stable for Home Depot.

“Despite near-term uncertainty, we believe the long-term fundamentals of home improvement demand remain strong and we are well-positioned to leverage our distinct competitive advantages to capitalize on compelling growth opportunities in our space,” highlighted CEO Ted Decker. Q3 2022 earnings call.

Management’s encouraging tone should ease any investor concerns.

Looking at the assessment

There is no doubt that from a quality perspective, Home Depot is a good venture. It is a leader in its industry with strong growth and strong financials, but it has also shown its resilient nature when economic times are not so strong. Any investor with these favorable characteristics will be delighted with a company.

However, there is another consideration to keep in mind. And it’s a matter of evaluation. After the stock’s big price drop in 2022, Home Depot shares are selling at a Earnings from value (P/E) ratio is 19. This makes the stock cheaper than smaller rivals Lowe’s Despite Home Depot posting better growth in recent quarters and historically better profits and returns on invested capital.

The assessment is certainly attractive at first glance. But what makes Home Depot stock even more compelling is management’s capital-allocation policy Home Depot currently pays a 2.4% dividend, an amount that has grown consistently since the business first started paying out in 1987.

Additionally, Home Depot has engaged in $5.1 billion in share buybacks in the first nine months of fiscal 2022, a move that boosts earnings per share for remaining shareholders. It also signals to the market that the leadership team believes the stock price will be undervalued.

Investors could do a lot worse than adding Home Depot to their portfolios in 2023.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has and recommends positions at Home Depot. The Motley Fool recommends Lowe’s Companies Motley Fool has a revealing policy.


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