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Home Depot Stock Is Outshining the Dow

By Dan Dzombak - Apr 12, 2013 at 1:34PM

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Home Depot is defying the negative retail sales report and the Dow's drop with its 2% rise today.

The Dow Jones Industrial Average (^DJI 0.03%) is down following the release of a disappointing retail sales report. As of 1:15 p.m. EDT the Dow is down 28 points, or 0.19%, to 14,836. The S&P 500 (^GSPC 0.01%) is down 0.45% to 1,586.

Last week's terrible jobs report showed the U.S. added just 88,000 jobs in March, with the biggest loss of jobs occurring in the retail sector. Analysts worried that the payroll tax increase was beginning to affect consumers' willingness to spend and that the loss of retail jobs was an early sign. We had to wait for today's retail sales report from the U.S. Census Bureau to find out. Unfortunately for the economy, the retail sales report was even worse than expected. After growing 1% in February, retail sales were down 0.4% in March. That's the worst drop in nine months and below analyst expectations of a slight 0.1% drop. While March's retail sales were still 2.8% above last year's retail sales, many investors had hoped that the strong growth from the past few months would continue throughout this year.

Today's Dow leader
Given the negative retail sales report, it's a bit of a surprise that today's Dow leader is Home Depot (HD -0.20%), up 2%. Home Depot stock has had a good year so far, up 18% as the company benefits from a rising housing market. Today, Home Depot stock was upgraded by a Jeffries analyst from hold to buy, with a price target of $85. In light of rising housing prices, the analyst said, "We think an appreciating asset is much easier for the homeowner to invest in than a depreciating one -- not just psychologically, but from a credit perspective as well." Home Depot competitor Lowe's (LOW -1.69%) also sees a strengthening home-improvement market and plans to add 9,000 permanent part-time employees.

HD Total Return Price Chart

HD Total Return Price data by YCharts.

The second piece of news affecting Home Depot stock today is that the private-equity owners of HD Supply filed for an IPO. HD Supply is the former construction, contracting, and industrial supplies distribution division of Home Depot that the company sold to private equity in 2007. Home Depot still retains a 12% equity interest in the company, which brought in $8 billion in revenue in 2012 -- a 14% growth over 2011. Investors in Home Depot should take note, as private-equity investors are keen investors and would only initiate an IPO if they thought it was an opportune time to sell shares. This might be a sign that Home Depot stock and other housing-related stocks are overheated. We shall have to wait and see.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$31,261.90 (0.03%) $8.77
The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
$287.19 (-0.20%) $0.57
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,901.36 (0.01%) $0.57
Lowe's Companies, Inc. Stock Quote
Lowe's Companies, Inc.
$184.69 (-1.69%) $-3.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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