This small stock buy is a play on a bounce back in home improvement this year
We are buying 55 shares of Stanley Black & Decker at roughly $93.98. Following the trade, Jim Cramer's Charitable Trust will own 740 shares of SWK, increasing its weighting in the portfolio to 2.27% from 2.10%. We are making a small buy of SWK, slightly violating our average cost basis of $90.22. Shares are down about 4% year to date as many of the late 2023 "broadening out" rally winners have taken a slide since the recent bounce in interest rates. Shares of this hand tool maker tend to have an inverse relationship with rates because of its ties to the housing market, especially existing home sales. The concept is simple: When people move into an older home, they are more likely to put more money into it and take on remodeling projects. Some of Stanley Black & Decker's leading brands are DeWalt, Black + Decker and Craftsman. Even though the stock is down slightly this year, we see more signs that the home improvement market will rebound after a tough few years. Piper Sandler reinforced this call earlier Tuesday in a detailed note when it upgraded its rating on Home Depot . The main reason for Piper Sandler's call is stabilizing home equity extraction, which is when a homeowner takes out equity from the value of their home through a loan— extra cash often used to fund a large remodeling project. As Piper points out, home equity extractions have declined because of higher interest rates. However, analysts think it will return to growth in the first quarter of this year based on improving mortgage refinance applications. And if mortgage rates stabilize at these levels, Piper thinks extractions will grow "modestly" this year. The real bullish trend will be if rates fall even further, creating what Piper calls a "meaningful" extraction cycle considering the firm's estimate of a near-record $10.6 trillion of tappable equity. All of this is very positive for the home improvement industry at large and Stanley Black & Decker, a company that has spent the past year and a half working down excess inventory which, when finished, will give its margins a clean start ahead of a potential upcycle. (Jim Cramer's Charitable Trust is long SWK. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.