'Harmonizing tailwinds' sets Home Depot, Best Buy, and Wayfair as J.P. Morgan's top picks

J.P. Morgan analyst Christopher Horvers highlights a positive outlook for the retail sector, particularly for Home Depot and Wayfair, due to favorable trends such as wage growth and increased consumer spending anticipated in the first half of 2026.

Home Depot is recognized for its strong long-term growth potential driven by tailored strategies and an effective corporate culture, while Wayfair is expected to outperform competitors as online retail continues to grow.

Best Buy's prospects are bolstered by trends in housing markets and technology cycles affecting appliances and electronics, suggesting it may be undervalued by investors.

While new tariffs on imports may pose challenges for Wayfair, the company's strong online presence and supply chain management are expected to mitigate impacts on consumer demand, whereas Home Depot’s diverse supply chain provides resilience against such tariff impacts.

Recommendation Rating: Positive Outlook for Retail Sector

In the current consumer market, characterized by changes such as interest rate cuts, tariffs, job growth, increased wealth effects, and tax incentives from the recently passed legislation, J.P. Morgan analyst Christopher Horvers identifies certain retail stocks that are well-positioned to thrive in a turbulent investment climate.

According to Horvers, a confluence of four favorable trends anticipated in the first half of 2026 is likely to enhance consensus projections for home and goods-oriented retailers. These trends include robust wage growth, a resurgence in replacement cycles, and incremental inflation benefits, which could serve as significant catalysts for select retail names.

Horvers emphasizes the promise of Home Depot (NYSE: HD) and Wayfair (NYSE: W), highlighting the potential for growth in light of improving housing market data and the easing of wallet-share pressures, particularly with the potential for additional rate cuts. He states, "Home Depot (NYSE: HD) stands out as one of the strongest long-term narratives in retail, bolstered by its tailored growth strategies, outstanding corporate culture, and unwavering focus on innovation.” For Wayfair (NYSE: W), he believes the company is poised to surpass its competitors due to a sustained shift towards online retailing.

Both Home Depot and Wayfair have been placed on J.P. Morgan’s Positive Catalyst Watch list, indicating optimism regarding their future performance.

Best Buy (NYSE: BBY) is also influenced by housing market trends, particularly concerning appliances and televisions. The ongoing replacement cycle for computing tablets—which accounts for a significant portion of Best Buy's sales—further underpins its growth prospects. Horvers views Best Buy favorably, suggesting that investors may be undervaluing the impact of technology cycles and the link between the company’s sales and housing market fluctuations.

Post-Tariff Considerations

Horvers’ insights were shared prior to President Trump’s announcement regarding tariffs on imported furniture, kitchen cabinets, and bathroom vanities, which could alter the financial landscape for Wayfair. While the additional expenses may challenge Wayfair’s profitability, Horvers believes they are unlikely to diminish consumer demand for the company’s products.

With a robust online presence and a stringent focus on expense management, Wayfair is positioned for a long-term positive shift in earnings revisions. The firm's strategic advantages in assortment and supply chain as a leading online specialty retailer are expected to bolster its market standing.

Home Depot, meanwhile, should experience minimal impact from the tariffs. The company has effectively mitigated risks associated with foreign suppliers, and its diversified supply chain, along with a predominantly domestic merchandise base, provides flexibility in cost and pricing strategies. This infrastructure enables Home Depot to absorb potential price fluctuations stemming from the recent tariff developments comfortably.

In summary, J.P. Morgan's analysis points towards a promising outlook for key retail players like Home Depot and Wayfair, indicating that they are set to capitalize on emerging opportunities within a changing consumer environment.