My Favorite S&P 500 Stock to Buy During the Dip

The stock market in 2026 has rebounded nicely from a challenging time following the launch of the Iran war in late February. Using the popular S&P 500 index, equities have gained 9% through June 7.

There's been a lot of attention paid to companies that make semiconductor chips because of their use in artificial intelligence (AI). And those stocks have soared, helping push the S&P 500 higher. In fact, the S&P 500 Information Technology sector appreciated by 18.4% this year.

While investors have flocked to those stocks, others have seen their prices dip this year. Home Depot's (NYSE: HD) share price has dropped 9%. But long-term investors should take notice and use this opportunity to buy shares.

Image source: Getty Images.

Short-term challenges

Home Depot has long been a successful home-improvement retailer. The company's annual sales of nearly $165 billion in fiscal 2025 (ended Feb. 1) dwarfed those of its major competitor Lowe's, which produced roughly $86 billion.

As you'd expect, Home Depot's sales depend on certain economic factors, such as consumer confidence, the job market, and inflation. Persistently high inflation has forced consumers to spend more on everyday basics, meaning they have less to spend on major renovations.

Meanwhile, elevated interest rates have also affected large home improvement project undertakings. That's because people often borrow to undertake major renovations. Higher interest rates have also dampened buyer demand for houses, a key source of renovation demand since people typically renovate their new homes.

You can see the effect these factors have had on Home Depot's recent sales, which have been sluggish. Fiscal first-quarter same-store sales (comps) were flat after removing foreign-currency translations. Management cited homeowners delaying major renovations as the chief reason for the sales weakness.

However, interest rates will drop at some point, homes will become more affordable, and homeowners will undertake major projects, even if it's out of necessity. Of course, no one knows when that will happen. But when it does, Home Depot, with its attractive price points, wide range of offerings, and ubiquitous presence, remains in a prime position to benefit.

Buying Home Depot stock at a bargain

These short-term concerns have hurt Home Depot's share price. They have underperformed the S&P 500 by about 19 percentage points so far in 2026.

However, given that Home Depot remains in a strong competitive position, long-term investors should take notice of the better valuation. The stock's price-to-earnings (P/E) ratio has dropped from 24 to 22 this year. That also compares favorably to the stock's historical valuation. The shares have a 10-year median P/E ratio of 23.

Buying shares in a company merely because of a price drop is a risky gambit. However, in this case, it's an exciting opportunity to buy shares in a market-leading company whose stock price has dropped due to short-term economic factors.

That provides long-term investors with an excellent opportunity to buy shares during this time.

Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.