Home Depot (HD)

The parts of the US economy that are showing strength, the improvement sector is one. With the multiple it is trading at, she is playing the housing strength in different ways.

This is at a sweet spot. Well managed. Household formations are not keeping up with population growth, so there is a lot of runway in front of them. Unemployment is coming down. Interest rates are low. They are moving very effectively into the professional market. Return on Capital is up 32%, a tremendous financial performance. Dividend yield of 1.95%.

A very good operator and capital allocator. Primarily US at about 90%. The rest is Canada and Mexico. This is a play on the US economy. The consumer is healthy, employment is healthy. When people feel better they spend more on their home. When the job market is robust, they tend to move. Housing starts are still way below normalized levels, and should slowly improve. They always pay out 2% of their earnings in dividends. Dividend yield of 2.07%.

A premier buildings product company. Prefers it 5% cheaper. Great company that generates a lot of free cash flow and consistently raises its dividend. Dividend yield of 1.9%.

Positioned well as they have exposure to the new home market and the renovation market. The housing cycle in the US is certainly better than it is in Canada and other global countries. Lower oil prices will benefit them in terms of additional consumer spending.

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.