Home Depot (HD)

The crème de la crème in the retail space, something Amazon can’t fight. There are a lot of renovations. In housing, people are pretty much buying whatever they can because supply is not available, especially in the Midwest and California, so you get a teardown and start to renovate.

He likes this company and the space. People have stopped spending money on “things”, as much as they are now spending on “experiences”. The one exception would be on the home. They are renovating like gangbusters. This company is great. They just continue to execute on their plan.

(A Top Pick May 18/16. Up 23%.) They just reported, and it was very positive. US comps are up 6%. The US housing market is very healthy.

He loves this. A great way to play housing from 2 points of view. First of all, for new housing where people are going to them for appliances. Also, people are opting for remodelling, and this company will be a great beneficiary of that trend.

(A Top Pick Feb 17/16. Up 38%.) Has owned this for many years and it has been a great company for him. It is in the sweet spot of where we are in the economic cycle. Low interest rates, buying new homes, renovating, etc. is what is motivating people to go to this company. One of the best managed companies he has ever covered.

(Top Pick Feb 9/16, Up 28.27%) She still likes it. It is a play on the US economy. As employment and GDP improve people may spend more on home improvement. With a third of the age group 18-36 still living at home and as the job environment improves they tend to move out into a home of their own. The company is well managed and always increases their dividend. They report later on this month.

He likes owning companies that can grow a dividend. This has about 2,200 locations and has been growing same-store sales at about 7% for the last 5 years. They’ve grown their dividend 21% a year over the last 5 years. If you think the consumer is improving, this is a good place to go. Technically, after having consolidated over the last year, the stock is breaking out. Dividend yield of 1.96%. (Analysts’ price target is $148.67.)

It has been pretty flat over the last year. They have a very good market position. She gets repair and remodeling exposure through other companies. The average home gets $3500 spent on it when it changes hands, according to HD-N. Changing family formations with millennials leaving home to get their own are still a benefit to HD-N. It looks more interesting now than it has in the past.

(A Top Pick Feb 9/16. Up 21.74%.) This is really a play on the US economy, US GDP growth, employment growth, etc. They are all trending up and are reasonably healthy. As housing starts and turnovers improve, that will promote housing renovations and repair. About two thirds of US housing is over 30 years old, which means more repair and renovations. Good dividend yield of 2.1% and always increase it every year.

(A Top Pick Jan 12/16. Up 9.19%.) She prefers this over others, because they have higher margins and are executing better. This is really a play on improving employment, improving GDP growth and higher housing. Housing turnover is a very important metric. When someone buys a house, they usually want to do some work on it. They’ve been seeing very good same-store sales growth. Online is only about 5% of their revenues, but it is growing. Online commerce is not a potential threat for them.

A very well run company, but you are paying quite a bit for it. It can take quite a while to grow into it. We are a number of years into the housing turnaround.

A great company, but also a $160 billion company trading at 18.5X forward earnings, which is a premium to the market. The fact that it is a great company is reflected in the stock. The US housing market has recovered. It is now at 1.3 million home starts on an annualized basis. On a normalized basis based on the last 40 years, you’ve had about 1.3-1.5 million starts, so you are back to where US housing should be. This will be a beneficiary of that, but the market already reflects that. It is hard to grow a $160 billion retail company, and paying a premium to the market is challenging. If you don’t own it, he would look elsewhere.

He is very bullish on the reno cycle. If tariffs get slapped on imports from China it will have a negative impact on this stock.

Reported this morning with strong numbers and a strong quarter, but the stock was off a couple of dollars. Higher interest rates may mean higher mortgage rates with increased borrowing costs. However, the Company made some good points. They looked at the affordability Index, which is currently above 150. An average median household can buy a medium-priced home at an 80% mortgage, and as the rate goes up, it is more positive. Employment growth is strong, consumer confidence is strong and the economy is growing. All of these things work in their favour. (Analysts’ price target is $148.80.)

Home Depot (HD-N) or Lowe’s (LOW-N)? Home Depot is about 3 to 4 times the size of Lowe’s, and their store count dwarfs Lowes. This is down about 6%-7% this year where Lowe’s is having a better time of it. However, going back 5 years, Home Depot has been a better, smoother experience. This is a tough call, but knows that Home Depot’s footprint is a bit higher.