It's hard to believe that only three weeks are left in the year. But a lot can happen in three weeks. The Federal Reserve is set to meet in the middle of December, and it has signaled a desire to cut interest rates further at that time.
When it cut rates in September, the stock market had an extremely positive reaction, and another cut could activate more market enthusiasm. Mortgage rates began to go down when interest rates were cut, but they're going back up. Further cuts could be crucial to bringing them back down and stimulating the housing market -- and, by default, housing-related industries.
Home Depot (HD -0.58%), Opendoor Technologies (OPEN -2.34%), and Wayfair (W -1.91%) could still benefit in a big way before the end of the year, and now could be an excellent time to buy shares.
1. Home Depot: The home improvement giant
Home Depot is the largest home improvement chain in the world, with 2,300 stores in North America. It reports reliably strong performance -- most of the time. But it's been feeling inflationary and high-interest-rate pressure, and sales have been declining, as have earnings per share (EPS).
High mortgage rates are resulting in fewer people looking for new homes or putting their existing homes on the market. Buying new homes comes with all kinds of home improvement projects, and they're on hold now.
In the meantime, Home Depot is doing what it can to generate growth where it can, operate with improved cost efficiency, and position itself for a strong rebound when the time comes. Some recent actions it's taken include building out its supply chain with new distribution centers to reach more customers with 1-day shipping and new acquisitions that target the pro customer.
There was already improvement in the fiscal third quarter (ended Oct. 27), which included some time after the interest rate cuts. Comparable sales were down 1.3% from last year, but total sales were up 6.6%. The quarter came in ahead of expectations, and management raised guidance across the board.
The market was happy, too. Home Depot stock rose after the results were released, and it's up 23% this year. That's still underperforming the market, but it demonstrates a good deal of confidence in Home Depot's ability to rebound under better conditions. If interest rates continue to go down, Home Depot stock should rise, and it will be in an excellent position to keep going in 2025.
2. Opendoor: The real estate disruptor
Opendoor has been in miserable shape since the residential real estate market has dried up. It's an iBuyer, which means it buys homes to fix up and resell. There have been a handful of other companies getting into this business, which has opened up with the advent of digital. However, the enormous cash load necessary to buy homes has made it a challenging business to operate in, and other companies like Zillow have bowed out. Opendoor is sticking it out, but with fewer properties on the market, it hasn't been able to grow its business.
There was some progress in the third quarter. It bought 3,504 homes and had 1,006 under contract, and it has 6,288 in inventory -- 64% more than last year. However, it's still well below the performance it was demonstrating before interest rates went up.
That earlier performance should give investors some confidence in the potential for Opendoor to stage a healthy rebound. It has the fundamentals of a good, disruptive business, with its tech-strong digital app, robust machine learning algorithms that create a compelling alternative to traditional realtors, and massive opportunity in a $1.9 trillion industry.
Opendoor stock also jumped on the interest rate cut news, but it's still down 53% this year. Opendoor stock is a huge risk, but it also comes with incredible potential for rewards for the risk-tolerant investor.
3. Wayfair: The struggling housewares retailer
Wayfair has been struggling for years already, ever since its pandemic-driven growth ended. That period exposed the company's deep and difficult profitability problems, and in the aftermath, it hasn't been able to connect with customers and generate more growth.
In theory, here's what to like about Wayfair. The company's premise makes sense -- it sells furniture online and reaches across demographics with its various brand collections. It has excellent technology underpinning its platform, with features like viewing products in a shopper's home, and it works with thousands of suppliers that use its dropship model and logistics network. Since Wayfair doesn't have to spend costly sums to keep goods in inventory, instead working as a platform and shipper, it has the perfect setup for strong profitability. However, it just hasn't been able to scale profitably. Instead, it's been pouring money into its development without seeing the results necessary to justify it.
The market is conflicted about Wayfair, seeing its dismal performance but also its opportunities. Management has made some hard decisions about expenses, and the third quarter was the ninth straight quarter of narrowing fixed costs. It also had the lowest SG&A expense since 2021. It's not expecting a miraculous turnaround in this difficult operating environment, where nearly every housewares retailer is under pressure. But Wayfair is making a good showing, considering the times.
If interest rates get cut further, expect positive movement from Wayfair. As the economy improves, it could become a true turnaround stock. However, it's only for investors with an appetite for risk.
