Melius’ research seems to be in line with our idea that now is the time to hold your nose and buy some in this market – at least as far as some of the names associated with the house are concerned. That’s the message in a note on Tuesday from analysts at Melius who initiated coverage of the housing sector – placing a buy rating and a price target of $397 per share on Home Depot. He is among the 58% of Wall Street shops with a buy rating; 38% have a catch; and others sold, according to FactSet. The club rated 1 equal to buy on the stock after acquiring it this summer. Analysts Melius pin optimism in the idea that it is set to increase in the home market there, which is where the demand for repairs and remodeling projects tend to come from. That’s why he likes Lowe’s too. “We see an increase in existing housing supply as the most important trend for the housing ecosystem, more so than we currently expect,” Melius wrote. The headwinds, as Melius sees it, more in the new housing market because not only the high interest rate environment is crushing monthly ability, but also the labor market is slower. Not surprisingly, consumer confidence remains low as people are wary of taking on large, decades-long financial commitments. In fact, analysts say that job growth and consumer confidence “are considered two of the three most critical drivers of demand for housing (rates are the third).” While they like homebuilder Toll Brothers, analysts rate DR Horton, KB Home, and Lennar as sells. In recent years, the main factor hindering the real estate market and preventing the supply of existing housing is the “lock” effect. This happens when existing homeowners, who may want to move, choose not to because their existing mortgage rates are better than what they can get in the current mortgage market. Sure, you might have bought a house in 2020 for $750,000 and now want to sell it for $1 million and move, but are you willing to give up a sub-3% mortgage rate in exchange for 7%? All things being equal, going from 3% to 7% on a 30-year fixed mortgage increases your principal plus interest payment by about 58% per month. We have waited about two years for mortgage rates to drop below 6% and stay there. When it was the wrong call, we held a small position in Home Depot ready for when rates finally fell. In addition, during the difficult years, the company has been buying up building distributors left and right, getting bigger when it comes to housing. That said, lower rates may not be the only way to keep the existing housing market going. The “lock-in” effect has been reduced. “Specifically, 50% of homeowners are now in a sub-4% mortgage vs. 61% three years ago, while 22% have a 6%+ mortgage vs. 10% three years ago,” Melius analysts said. “We expect this trend to continue for at least the next 2-3 years and lead to positive inflections like a tipping point in existing home sales and repair/remodel demand.” Even if it doesn’t match the demands of new homes, it’s definitely better to go to Home Depot. The analyst said, “Supply is likely to remain headwind to the new home market in the next few years, as new homes for sale are at the highest level in twenty years and existing homes for sale should continue to rise steadily moving forward.” Of course, this is not an endorsement that can be bought because of the good stuff; rather, it’s a call to buy because it doesn’t seem possible to get much worse – at least for the home market there is something important so much for a name like Home Depot. Call Melius not so much a way to time the perfect purchase as much as to start thinking about what can go right to Home Depot, and figure out the purchase level that allows you to get to establish a good cost base (or increase there) which to build a position ahead of the expected turnaround. While technical analysis is not our way of thinking about what to buy (we are fundamentalists), it can be a useful tool to inform us of opportunistic levels. A quick look at Home Depot’s chart supports the idea that we are looking at these levels. The stock is currently trading at its lowest level going back to October 2023. Over the past five years, Home Depot’s closest close was June 2022, at around $270 apiece. That doesn’t mean things can’t get worse; stock stopped at $0, they say. However, this tells us how bad sentiment is – and, in a way, shows that current levels are buyable. From a valuation perspective, Home Depot trades at about 18 times forward earnings estimates, which is below its five-year average of about 24 times. So, if you want to find a book with a name that still has a good house, in a very bad environment, with the idea that the neighborhood is set to be better, Home Depot is attractive at the current level because there is relief in the interest rate that can be found with many buyers. Remember, any break in the Middle East unrest can flip high oil on the dime and lead to lower prices. If that happens, some say when, the pressure comes from bond yields and the Federal Reserve. The talk can quickly shift from how many more Fed rate hikes are in the cards to how soon a rate cut becomes a possibility. If we zoom in on the Home Depot one-year chart, we find that the downward momentum in the stock may be set to reverse, as the MACD indicator is on the verge of crossing the signal line. Confirmation is considered to come when the convergence divergence of the average moves across the zero line. While technicians may choose to wait for that to happen, we show them because they can support the basic view. It is the foundation that carries more weight for us. It is also worth noting that the relative strength index (RSI) just crossed back above 30, which means that the shares are at the latest in the oversold area below 30. Below the line Melius does not give us a back-up-in-the-truck call, or the sense that we must hurry before it is too late. Do you have stocks that may have found the bottom and proved to be spring coiled in the quarter ahead, especially if the rates fell after the resolution of the Middle East. The idea is not to time when the coiled spring arises but to figure out when it has become so coiled that the risk/reward ratio simply cannot be ignored. Given the view that Home Depot is really being hampered by the operating environment, and not managerial or execution issues, we think that the stock, just 4.5% above its five-year close and about 34% from its record high of $431 in December 2024, is now at that point. Given the position there, we want to see a bit more confirmation that below. However, for those looking for a contrarian idea that plays right into lower oil and, in turn, interest rates, the shares are sure to be interesting down here. (Jim Cramer’s Charitable Trust is long HD. Read here for a full list of stocks.) As a CNBC Investing Club subscriber with Jim Cramer, you will receive trade alerts before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling shares in his charitable trust portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing a trade alert before executing a trade. 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A recent analyst call on Home Depot reflects our feelings about what to do with the stock