Cramer's Top Five Dow Stocks: Home Depot

The lowest mortgage rates in nearly 50 years combined with the most affordable homes in the past two decades should bring both buyers and sellers back into the market. And whether a new owner is rehabbing a recent purchase or someone’s prepping for a sale, you can bet they’ll be going to Home Depot for all their home-improvement needs, Cramer told viewers Friday.

HD is Cramer’s fifth and final favorite Dow stock for 2009, and it’s a play on his prediction of a housing bottom by June 30 of this year. He thinks the cheaper mortgage and refinancing rates will put more money in people’s pockets, money they’ll spend at Home Depot. The company has a strong presence in some of the hardest-hit markets in the U.S. – namely California and Florida – and there are signs these areas have stabilized. Cramer expects this trend to continue, and that’s good news for HD.

Home Depot’s recovered well from the stewardship, or lack thereof, of former CEO Bob Nardelli. Nardelli’s at Chrysler now, doing just as bad a job, Cramer said. In the four quarters since he left HD, gross margins have increased year-over-year. The company’s also become much more effective at merchandising and pricing. And if Sears can perform in this environment – the stock jumped 11.4% Thursday – so can Home Depot.

Cramer actually prefers Lowe’s to HD. But given this is his list of favorite Dow stocks, he had to choose the latter. But that’s OK. Because beyond the chance for this company to ramp up with housing’s return, there’s also a dividend here that’s worth owning. Wait for Home Depot’s share price to pull back to $22.50 and the yield hits 4%. Buy in increments on the way down and you’ll pocket more cash payouts as you wait for the turnaround.

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