We're selling 40 shares of Home Depot at roughly $348 each. Following Thursday's trade, Jim Cramer's Charitable Trust will own 290 shares of HD, decreasing its weight in the portfolio to 2.5% from 2.9%.
Home Depot is trapped by elevated interest rates. While we think it a great "house," it is unfortunately in an awful "neighborhood." These days, that can account for a major chunk of the stock's underperformance.
Plus, with oil prices going back up on renewed Iran war tensions, and rising bond yields indicating Federal Reserve interest rate hikes, if anything, we have no choice but to reduce our exposure.
We got into Home Depot when rate cuts were expected. Home Depot trades on mortgage and home equity line of credit (HELOC) rates. Mortgage rates relate to home-buying activity, while HELOC rates relate to major renovations. When rates increase or stay elevated, life events, like home purchases or renovations, that drive the bulk of Home Depot's business get pushed off, if not canceled altogether.
At the moment, mortgage rates are at their highest level in nearly a year, so we're looking at a good deal of pressure on the potential home buyer and potential home renovator.
A resolution to the war, which would take pressure off rates, would be bullish for Home Depot. That's why we aren't looking to get out completely, as Jim mentioned on Thursday's July Monthly Meeting for Club members.
Think about the reduced position as a hedge on lower inflation and turning lower for rates. Understanding that the upside is limited, we want to take some off a stock that's rallied some 17% since the May low.
With this sale, we will realize a roughly 5% loss on stock purchased in September 2024. It will also rebuild our dry powder (cash) for names better able to perform in this high-rate environment.
