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The Dow Jones Industrial Average comprises 30 major US companies. A committee picks a group of stocks across diverse sectors that it believes represent the US economy. Even though they are large stocks, some can still fly under investors’ radars. Here’s one that I think could do well this year.
An underwhelming 2025
I’m referring to The Home Depot (NYSE:HD). The largest home improvement retailer in the US operates a fairly simple business model of supplying products to DIY homeowners and professionals. Yet it might surprise some to note that the share price has fallen by 11% over the past year!
The move lower is partly justified by the slow US housing market. Interest rates have stayed higher for longer, meaning mortgage rates haven’t fallen as much this year as many expected. Further, the miss versus expectations in quarterly earnings was “primarily due to the lack of storms in the third quarter, which resulted in greater than expected pressure in certain categories.”
As a result, I don’t think many are that optimistic about the stock as we hit 2026. This makes it a dark horse in my book, because I think there are several reasons why the business can do much better than people expect.
Why 2026 could be positive
The latest quarterly results from November still provided guidance for a full-year total sales growth of 3%. This tells me that despite short-term headwinds, the overall business operations are very robust. Factors like storms (or weather more broadly) aren’t a negative drag for a year or more.
A big factor that could help the US stock in 2026 is lower interest rates. The current Federal Reserve chair is due to step down in the spring, with his likely successor pushing for interest rates to be cut at a faster rate. If mortgage rates decline as a result, housing turnover should follow. From there, remodelling and home improvement spending often increase, which traditionally is a big demand spike for Home Depot’s business.
Finally, the company is diversifying operations thanks to the recent acquisition of GMS back in September. GMS serves the trades sector much more. So, the shift toward professional customers (offering larger, repeat purchases) could deliver steadier earnings growth than relying only on DIY homeowner spending.
The bottom line
When I look at other constituents of the Dow Jones, I think Home Depot could be a strong performer in 2026. It hasn’t been caught up in the AI hype, with lofty valuations. Although the slow housing market is an ongoing risk, I think chatter about lower interest rates could provide a catalyst for the stock to rally hard later in the year. As a result, I think it’s a stock for investors to consider who are looking for US exposure to their portfolios.
