The stars look like they’re finally aligning in 2026 for Home Depot — one of seven out-of-favor portfolio stocks that Jim Cramer has called a buy. Although shares are down nearly 11% year-to-date, three recent developments point toward a recovery for the home improvement retailer. 1. November’s cooler-than-expected consumer price index (CPI) is helping the case for further Federal Reserve interest rate cuts next year. While Federal Reserve Chairman Jerome Powell has presided over three rate cuts in 2025 and three others in 2024, he has been cautious and data-dependent. Powell’s term as Fed chief, however, ends in May. Investors are betting on more dovish Fed leadership once President Donald Trump has his pick to succeed Powell in place. Trump has not been shy about demanding lower rates. Mortgage rates, which tend to follow the 10-year Treasury yield , have yet to fall meaningfully enough to reinvigorate a severely stalled housing market. Nationally, the average 30-year fixed-rate mortgage still sits above 6%. The success of Home Depot largely depends on lower rates and a vibrant housing turnover, both of which might be on the way. 2. While shelter costs, which are about one-third of the overall CPI, rose 3% year over year in November, there are signs in the private sector of moderating home prices. Lennar ‘s fiscal 2025 fourth-quarter results showed that housing prices might be lowering to pre-Covid levels. The builder said that in the fourth quarter, its average home sale price was $386,000, versus the $383,900 estimate. For all of 2025, the average sales price was $390,900, lower than the 2020 price of $394,300, before Covid premiums pushed prices to a pandemic-era peak of $479,900 in 2022. Lennar said it expects average sales prices to fall to between $365,000 and $375,000 in 2026. With the housing affordability crisis at the forefront, Lennar said federal officials have begun talks with builders to develop solutions. Declining home prices combined with potentially lower rates are an excellent sign for Home Depot. 3. In another positive signal for Home Depot, Citi upgraded Sherwin-Williams ‘ stock to a buy, with analysts citing a better set-up in 2026. “We think existing home sales could be sensitive to small positive changes in both mortgage rates and consumer confidence,” the analysts wrote in a Dec. 18 note to clients. Citi said that the paint maker has “tended to outperform as existing home sales come out of periods of multi-year lows.” Jim said that if this is the readout for Sherwin-Williams, peer Home Depot is a buy as well. Citi analysts, however, reduced their price target on Sherwin-Williams to $390 from $392. Still, that implies a nearly 20% upside from Friday’s close. (Jim Cramer’s Charitable Trust is long HD. 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.