Home Depot, Inc. (The) (HD)

Home Depot is a home-improvement chain whose revenue follows the housing market and mortgage rates.

Customers fall into two groups. Homeowners come for do-it-yourself materials; professional contractors come for volume. The second group produces fewer transactions but a far larger average ticket, and the company competes for its share by acquiring wholesale distributors.

Demand is tied to the housing market. High mortgage rates reduce transaction volume, and renovation most often happens around a move — so expensive money shows up directly in the accounts. Large projects such as replacing a kitchen are deferred first; small maintenance holds up better.

Logistics and owned distribution centres are a real part of the competitive advantage: heavy, bulky goods are hard to ship by parcel, and a nearby store beats an online storefront. Home Depot pays a steady dividend and buys back stock actively, which makes it an income name as well.