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Sometimes, the VQScore system identifies beaten-up stocks that experienced a recent downturn and are poised to rebound and break out in the quarters ahead.
But now and then, an exceptional company appears on the list.
That signal arrives long before Wall Street, hedge funds, and other institutional investors recognize the value and upside of the company.
And today, we're going to discuss one of the most reputable companies in America that is hands-down one of the best stocks to buy on the market.
Millennials Set Off a Homebuying Craze
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The stock that achieved a 4.15 VQScore and sat squarely in our Buy Zone is Home Depot Inc. (NYSE: HD).
The home improvement retailer's stock is sitting near its all-time high of $219.30. But the stock is poised for a huge run toward $300 over the next year.
The reason: millennials.
Last week, Home Depot CFO Carol Tomé visited "Mad Money" on CNBC to discuss a surprising trend around millennials. Americans 33 and younger comprised the largest cohort of first-time homebuyers in the United States.
But they're not buying brand-new homes with the pre-installed fixtures. Millennials are more interested in purchasing a home that needs some work.
"They've told us through our research, 'We want to work on our house because we think it's a good investment,'" Tomé said. Given that millennials see their homes as an investment, they are more likely to spend money to improve the interior and exterior of their homes.
And Tomé called that thinking "music to our ears."
Thanks to the emerging trend, more Americans are visiting Home Depot to work on significant projects. The home improvement business has been a major driver in the boost of home equity values over the last decade.
According to data sourced by CNBC, U.S. home equity values - measured as the difference between the price of the home and property minus outstanding debt - have more than doubled since 2011.
The home improvement trend will only accelerate as more buyers see their homes as a long-term investment that can produce wealth and security in retirement.
Millennials Driving the Housing Sector, HD Stock
The stereotype of millennials has been one of living in parents' basements and racking up huge student loan debts. But it appears that this generation is poised to steer home purchases in the United States for the foreseeable future.
According to Realtor.com, millennials overtook Generation X as the largest share of new mortgages back in January 2017. By the end of 2018, millennials represented 45% of all new mortgages. That figure topped 36% for Generation X and 17% for baby boomers.
And last November, millennials made up the largest share of new loan origination by dollar value. But again, this generation isn't as interested in cookie-cutter housing in new developments across the country. They're buying up older homes that require renovation projects to boost the underlying value of the property.
That's good news for Home Depot. As the nation's largest home improvement retailer, the stock is poised for a long-term run thanks to this trend.
Home Depot is spending $11 billion to improve its digital experience for customers in stores and plans to hire 1,000 new tech employees.
But Home Depot isn't just relying on the job market to identify talent. Tome said that the ongoing "war on talent" led the company to approach its own employees and teach them how to code.
This activity has given the firm a distinct competitive advantage.
Home Depot Stock Is Ready to Soar
HD stock is up about 24% since the start of the year thanks to a stronger dividend, millennial renovation projects, and falling interest rates. (Remember, its 2.23% dividend is still more than the 10-year Treasury note's 2.05%.)
The company is set to report earnings next month, and we anticipate that it will continue to climb.
Its earnings report will center on the spring homebuying season, and analysts expect that same-store sales will increase during the second half of the year.
Despite falling lumber prices (a factor that could impact forward guidance), it's fair to expect a strong rebound in homebuying and major renovation projects.
Wall Street expects same-store sales to increase by 4.2% year over year. But management - and we stress the importance of listening to the executives who know the business inside and out - projects that same-store sales will come in at 5%.
The Bottom Line
Home Depot is sitting near all-time highs. The stock is ready to smash through its record and charge toward $300. That'd be a 42% return from current levels.
The Money Morning Stock VQScore assigned Home Depot a rating of 4.15, which hints toward a new record run in the second half of 2019.
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