Home Depot (HD)

Benefiting from the resurgence in the US economy and better housing starts. Extremely well-run. A good company that buys back shares and regularly increases their dividends. In terms of valuation, he would not buy at these levels. If you own, you can continue to Hold, but he wouldn’t add to it.

(A Top Pick Jan 7/14. Up 30.04%.) This is a play on US housing as well as on GDP growth because as people have more money, they spend more. She is seeing revisions upwards for US GDP growth. The age of housing in the US is very old at 27 years, so people have to renovate. It’s also a job growth story because a 3^rd of population of ages 18-36 are living at home now because of the recession, so hopefully the economy improves and with a stronger job numbers these people move out of their parent’s homes and form their own housing.

(Top Pick Nov. 12/13, Up 29.57%) It is the kind of stock he looks for. It came out of the recession better than it went into it. They raised their dividend and bought back so many shares it costs them less now to pay the larger dividend than before. There is pent up demand in home renovation.

There is beginning to be a real estate recovery in the US. Over the next 3-4 years, there is going to continue to be a recovery in US real estate. In early 2008, many people’s houses went underwater versus their mortgage. One of the 1^st things you stop doing when that happens, is renovating your home. When home prices recover and you start getting equity value back into your home, you start renovating again. Free cash flow is about 20%-25% higher than its actual earnings because they are not opening a lot of new stores. Dividend yield of 1.88%.

(A Top Pick Jan 7/14. Up 24.91%.) This was really a play on the US economy. GDP growth is a factor that the company looks at along with housing starts. Housing still has much more room to grow. US housing is quite old with about 60% being about 27 years old. Improving employment means people will spend a bit more. She would wait for it to get into the mid-$90 before buying any more.

Benefited by an expectation of the economy picking up and is benefited by the oil price and putting more money into consumers’ pockets. He thinks it is overpriced.

If you own, he would be tempted to take some profits. Has had a tremendous bounce off the August lows. The recent earnings beat. There is a little bit of the US market in general that he doesn't like such as a lot of earnings beat was because of share buybacks. The US housing market is improving which they are benefiting from, but feels the valuation multiples are very high for single-digit growth.

(A Top Pick Oct 29/13. Up 29.62%.) Stock has done very well but she would not be buying here. They report on Nov 18. They’re in a very nice spot. Housing at 1 million starts is really just starting to ramp up, way below its normalized level. Energy prices have come off which has caused gas prices to come down 20%, and that has boosted consumer spending. Expects they will report a very nice number, but it is already near her target price.

The company went through a really difficult cycle with the US housing market since 2008. One of the big problems for the home and improvement companies was when people had little or no equity in their homes, they tended not to renovate. With home prices starting to improve, people are starting to get equity back in their homes. We are at the beginning of what he feels is a long, long cycle for home renovation.

Consumer theme. Natural tailwind, immune to disruption from e-commence. They have expanding margins (10-12%) Friendly to shareholders. Returning capital and buying back stock. Dividend went way up, but it is costing them less to pay it because they bought back so many shares. Almost all revenue from Canada and US.

(A Top Pick Oct 29/13. Up 21.94%.) She bought this based on the housing recovery and the increase in home prices. Housing starts are still below 1 million, way below the trend line. Seeing very strong sales in the last quarter they reported. They have a very good capital allocation program. Increased their dividend every year.

Had a big jump up, but revenue growth is only 4%. It may come down or it may stay there for a while. PE is rich. Their renovation component is what is driving their earnings.

This is a consumer story. The consumer is in great shape. They haven’t spent money on their homes in a long time. This company got stronger through the downturn and came out the other side in a very dominant position. Their financial metrics have been getting better. They have a great counter to the Internet trend in retail, because you have to go into a store to buy lumber and get advice. Incredibly shareholder friendly. Have been buying back an enormous amount of stock. Have increased their dividend by about 15% a year in the last 5 years. Dividend yield of 2.1%.

Stock was hit because of a credit card breach. They just had a record quarter. Had benefited from the US housing cycle. Improving their margins and coming out with new products. They return cash to shareholders and are doing everything correct. Multiples are not low, but still reasonable given their growth. As long as they do everything diligently in protecting customers’ data, they will get through this. The drop in the stock price is a buying opportunity.

Great management team. A wonderful place to sit and allow the housing recovery to mature. Very pleased with their earnings.