Home Depot: Playing The Housing Recovery

| About: Home Depot, (HD)

The housing market is in recovery mode. Housing data in recent months have improved substantially. On Tuesday, Home Depot (NYSE:HD) reported earnings, showing more strength in the housing sector. Home Depot is a great play on the housing recovery. The company is the leading home improvement retailer and operates in three divisions, do it yourself, do it for me, and professional.

The stock hit a new 52-week high on Tuesday when it reported better than expected earnings results. It also raised its earnings outlook for the year. The company now expects a $3.03 per share profit, and revenue growth of 5%. Same store sales rose 4.2% beating the consensus of 3%. Home Depot's operating margin is above the industry average. The company isn't excessively leveraged. Revenue will continue to grow as the housing market continues to recover. The aftermath of Hurricane Sandy is a supplement to this growth. Home Depot is currently trading above its 100 day moving average, and the stock is up 50% YTD. I see it going even higher. I expect a modest pullback in the stock as long time holders look to take some profits off the table. I suggest looking for an entry point around the 62.50+ range.

The housing market recovery has a lot of steam left and is the major catalyst for Home Depot . The chief economist of the National Association of Realtors, Lawrence Yun, affirmed that the housing market has turned around. Home sales, both new and existing, in addition to housing starts are much stronger to date than in the last four years. According to research, the national median existing home price should rise 6% in 2012 and increase another 5% in 2013. Existing home sales are projected to increase 9% this year and by 8.7% in 2013. New home sales and housing starts are also projected to increase substantially in the coming years. Yun also stated that building activity needed to return to normal levels or home prices could rise due to a supply disruption. REITS are another play on the housing recovery as home prices appreciate in the coming years.

Home Depot is a key beneficiary of the housing recovery. The stock gained massively on high volume on Tuesday. Expect a modest pullback and look to build into a position to ride out the housing recovery.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.