A sharp decline in housing starts in May did little to derail the stock market or Home Depot (NYSE: HD ) today. In fact, the Dow Jones Industrial Average (DJINDICES: ^DJI ) was up 0.14% late in trading, driven by the home-improvement retailer's 1.4% rise and strength in banking stocks.
Housing starts fell 6.5% in May from a month earlier and ended up just above an annualized rate of 1 million per year. Long term, this was just the fourth time in the past year that the monthly rate exceeded 1 million homes. But the market is still below the mid-2000s when housing starts were over an annualized rate of 1.5 million.
Home Depot brushes off housing starts
There may not be as many new homes being built as expected, but that's not all bad for Home Depot. The company will benefit from homeowners refurbishing old houses, and with interest rates down this year sales should pick up during the summer.
Investors should also consider Home Depot's advantage over other retailers given the market it serves and the products it sells. The home improvement and construction market is at little risk from online retailers because it sells large items that are needed quickly and offers services Internet companies can't match. So while other retailers struggle to grow on either the top or bottom line, Home Depot is doing both.
This isn't to say that Home Depot is cheering a slowdown in home construction. It would love to have more homes to sell products for, but it isn't dependent on new building to stay in business. Home Depot's business is diverse enough to overcome ugly numbers on new homes.
The company isn't cheap at 20 time trailing earnings, but it pays a 2.4% dividend yield and has an enviable position in home improvement. This business will be around for decades to come, which is rare in today's retail environment, but I don't see anyone knocking over this home-improvement giant.
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