Despite growing concerns over brick-and-mortar stores, Home Depot stock is set to rise roughly between 6% and 8% in the next two months thanks to two catalysts.
Those catalysts are the seasonal uptick in spring cleaning projects and home improvement projects.
And while those factors could boost the stock modestly, Money Morning Options Trading Specialist Tom Gentile has found a profit opportunity from Home Depot stock that could double your money that we'll get to shortly.
While the "spring cleaning" factor isn't enough to make a stock a solid buy on its own, the company has a solid financial footing. Home Depot Inc. (NYSE: HD) reported revenue of $22.2 billion last quarter, beating analysts' expectations of $21.7 billion.
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Sales are not the only bright spot for the company. HD has posted earnings per share (EPS) of at least $1.44 for each of the last four quarters, whereas Lowe's Companies Inc. (NYSE: LOW) has been averaging $1.00 in EPS over the same time period. This gives Home Depot a profit margin of over 8%, while Lowe's has a profit margin of only 4.76%.
And the good news doesn't stop there. Currently, the 32 analysts that follow Home Depot stock rate it as a "Buy." On average, analysts see HD stock climbing 6% to $156.10, but again, Gentile has a way to profit 100% from Home Depot that we'll explain in just a bit.
With all of the bullish indicators, HD stock has risen 15% in the last six months alone. Plus, May usually comes with a boost in stock price as more customers begin home improvement and spring cleaning projects.
Last year, the stock rose 13% between February and May alone. On average, Home Depot stock has risen 8% between February and May over the last three years.
That's why analysts are expecting a similar seasonal bump to Home Depot stock this spring.
However, Gentile has a much more lucrative trade, one that could net you triple-digit gains...
This One Home Depot Stock Play Can Net You 100% Profits
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Buying the Home Depot stock and realizing 15% gains in six months is pretty good. But being able to profit 100% in less than three months creates an amazing opportunity.
"Based on the price patterns I'm seeing, HD typically moves higher heading into May, as spring cleaning and home improvement projects take front and center with many people," Gentile said on March 9. "Therefore, at-the-money call spreads with May expirations could be your best bet right now (such as the HD May $145-$150 call spread). Not only is the cost low to get in - it's also currently priced in a way that could deliver you an easy double."
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Let's break down Gentile's trade for Home Depot stock...
An at-the-money call spread is an options trade. At-the-money means that the strike price is the same as the stock price. A call spread (aka bull spread) is when you buy call options at a certain strike price and expiration date. On the same order, you also sell the same number of call options with the same expiration date but a higher strike price.
In order to follow Gentile's advice, you would:
- BUY a HD May call option with a strike price of $145 AND
- SELL a HD May call option with a strike price of $150
This type of trade will allow you to bet on the upward movement of the Home Depot stock price for much less money than what you would need to spend to buy the actual stock.
In order to make 100% profit on this trade, Home Depot stock would need to rise about $12, or 8%. The stock averages an 8% gain in the spring, making this a real possibility.
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