Home Depot (HD)

A play on the US economy including a recovery in housing, strong employment and improving consumer confidence. They are using 2.5% GDP growth over the next few years and feels there is still a lot of room to grow. Private and fixed residential investment as a percentage of GDP is about 3.4%, but the long-term average is 4.5%, indicating people are still underspending in this area. About two thirds of housing stock in the US is over 27 years old, so there is going to be increasing demand for repair/renovations. Post the recession in 2008-2009, about a 3^rd of the population of 18-27 year olds are still living at home. As employment improves, household formation should increase, which will be beneficial. They are also focusing on increasing online sales, as well as their professional customer, which is only 5% of their customer base, but accounts for over 30% of revenues. Anticipates a dividend increase this year. Dividend yield of 1.85%.

(A Top Pick Aug 21/15. Up 13.70%.) This has great demographics behind it. We have a cyclical low in home ownership rates. Home ownership is on the rise and rates are very favourable. Good demographics.

(Top Pick Feb 18/15, Up 21.44%) People start spending again when their house price goes back into the black. He has been trimming a bit.

The housing recovery trajectory continues to be good. Savings with oil/gasoline prices should be landing in consumers’ pockets, so home-improvement should continue to be very good. They are executing perfectly. Dividend yield of 1.79%.

This has been a rock star. It weathered the Aug/Sept volatility really well and is back to new highs again. A very strong price momentum and scores in the top 10% for him. A stable stock. Not overvalued, despite being at all-time highs. Benefiting from a tailwind of high US employment.

(A Top Pick Sept 30/15. Up 9.85%.) He actually never ended up buying this, but still very much likes the stock. It had a classic break out scenario in October. The stock looks very technically positive and it is in the right space.

There are a lot of reasons to really like this. It is a great example of a “Best in Class” company. Good capital stewardship. Good cyclical tailwinds. Consumer spending is ramping up. People have jobs again and they are spending on their homes. Management, the best in the game, is on top of their business. They are buying back $7-$8 billion a year in shares. $134-$135 stock price would be reasonable. Dividend yield of 1.88%.

(Top Pick Sep 30/15, Up 8.81%) He ended up deciding not to buy it, going for a stock with more beta. He saw the bottom was the end of September. There is still more room to grow.

Lowes (LOW-N) or Home Depot (HD-N)? Thinks this has the more premier name and has executed a little bit better. Has a better scale. In the last 12 months, they have been very similar in terms of returns. Both names will benefit from an improving housing market in the US, which will continue for years.

(Top Pick Aug 21/15, Up 2.67%) Not bad given Aug/Sep. It is a best in class example. Benefitting from cyclical tailwinds. Good execution. There is a turn to focusing on the home. He is still a fan of this one.

Based on technicals and fundamentals. He likes the home building sector. It is pulling back to a nice trend line. Positive seasonals until early winter next year.

(Top Pick Oct 9/14, Up 24.68%) This is the biggest position he has. It is in the right sector and is a leader in the sector. He does not use a stop loss when there is a break in liquidity, the bids just fall off a cliff. He does not sell in that case. He manages stop losses manually.

(A Top Pick Dec 12/14. Up 17.89%.) The strongest part of the US market right now is the domestic landscape. Lower oil prices and housing price recovery. This company is in that sweet spot in one of the strongest parts of the economy. He continues to really like this.

90% of revenue is US so no currency headwinds. People can still spend a lot more on their home than they have done so far. 2/3rds of the housing stock in the US is over 27 years of age so more maintenance is required on the homes. HD-N are shareholder friendly in that they buying back stock and half their earnings are paid back in dividends.

This has been under a huge amount of downside pressure in the last little while. The chart shows it has recently been in a downward trend. The key is that seasonality tends to start moving higher around October and continues moving higher right through to the end of the year. Wait until about the middle of October, but between now and then, watch for any weakness as an opportunity to accumulate.