There has been a significant increase in home improvement activities over the past year as people stuck at home have expended more time and money upgrading their domiciles to make them more comfortable to work and live in. Among home improvement stocks, Home Depot (NYSE:HD) has been one of the major beneficiaries of this trend. But, given that HD’s expenses are soaring, we believe its peers Lowe's Companies (NYSE:LOW), The Sherwin-Williams Company (NYSE:SHW), and Stanley Black & Decker (SWK) are better positioned to capitalize on the industry tailwinds in the coming months. Read on for an explanation.The home improvement industry has been surging over the past year as consumers spent more time indoors amid a hastily adopted remote-working-and-learning culture courtesy of the COVID-19 pandemic. Now that more millennials are buying homes, given low mortgage rates, or are remodeling their old homes to make their living spaces more comfortable, the home improvement market is gaining noteworthy momentum. The industry has been enjoying favorable investor sentiment, as is evident in the SPDR Homebuilders ETF’s (XHB) 130.3% returns over the past year, compared to the S&P 500’s 46.4% gains. The global home improvement market is expected to grow at a CAGR of 4.5% over the next five years to reach $1155.79 billion in 2026.
However, despite being one of the major beneficiaries of this trend, The Home Depot, Inc. (HD)--one of the largest home improvement retailers in the world--has been struggling lately. HD’s profitability was negatively impacted in the fourth quarter, ending January 31, 2021, due to surging lumber and transportation costs. Its operating expenses were also significantly higher during this period.
Conversely, here are some home improvement players that have been benefiting consistently from the industry tailwinds: Lowe's Companies, Inc. (LOW), The Sherwin-Williams Company (SHW), and Stanley Black & Decker, Inc. (SWK). So, we think it could be wise to invest in these stocks in lieu of HD.