Jim Cramer Just Gave This Stock the Green Light — Should You Follow?

Mad Money host Jim Cramer just gave his approval for one of my favorite retail stocks. And while Cramer’s blessing is no replacement for putting in your own analysis and valuation, I do think that a Cramer thumbs up alongside a green light for your own homework is a perfect combo that warrants hitting the buy button. 

The Cramer-approved name I’m speaking of is, as you may have guessed, The Home Depot (NYSE:HD), which has been treading water over the past year, thanks to the stale state of the housing market, higher interest rates (Fed chairman Jerome Powell, who’s held off on rate cuts isn’t going anywhere despite recent fears of his firing), and other macro headwinds that could take away from future quarters. The company’s excellent managers are fully aware of the chilly climate ahead, and they’ve given fairly cautious guidance for a second half that’s sure to be full of surprises.

With a low bar and the recent valuation “reset” following the stock’s Springtime correction, I do think the large-cap discretionary is finally worth picking up while it’s down and out. Of course, the home improvement market is prone to ups and downs. Cramer stated that the name is one that’s best to “buy when it’s not hot.” These days, Home Depot shares are lukewarm to cold, making it a great time to back up the truck on a market leader that’s bound to find its way again.

A home improvement boom may not be too far behind

For homeowners, home improvement projects are something to be postponed, rather than scrapped entirely. At the end of the day, such renovations and remodels are not a discretionary splurge but an investment in the future value of their properties. While a slowdown in consumer spending and softness in the American housing market are perceived as a negative for Home Depot, I do think that a pick-up in projects around the home is a natural first step before the housing market gets back into high gear.

Indeed, it’s a good idea to fix things up before showing off a home while the “for sale” sign is on the lot, so that one can command a bit higher selling price. You’d be surprised how much of a jolt a nice coat of paint and a modernized kitchen could do to the value of a home.

It’s tough to predict when housing will boom again, but for Home Depot, I don’t think it matters much since renovation demand makes more sense as an earlier indicator for what housing will do next. I think Cramer is right on the money to stick with Home Depot while it’s in a rut, while the rest of the S&P blasts off. Arguably, HD stock stands out as one of the most striking pockets of relative undervaluation in a market that some may find is getting too hot to chase.

This analyst sees a new trend that could power HD stock

According to Jefferies analyst Jonathan Matuszewski, more Americans are borrowing against their home to pay for pricey renovations. With a $460.00 per share price target and a Buy rating, which suggests around 30% in total returns ahead.

Indeed, with Home Depot continuing to do a great job of providing customers with good value in the face of inflation, it seems like now is as good a time to take the plunge with a bathroom remodel. After all, inflation could drive material costs markedly higher next year! In any case, a home equity line of credit (HELOC) could give a lift to cash-strapped homeowners keen on sprucing up their largest single investment before a sale.

Though it’s tough to tell when HD turns a corner, I do think that long-term investors should find comfort in the name and its 2.51% dividend yield while shares are going for less than 24 times forward price-to-earnings (P/E), a multiple that’s way too cheap for one of the best-run retailers in the country.