Home Depot (HD)

It reports Tuesday. He expects a soft quarter from weak housing, but HD will benefit from the rebuilding from the south-eastern US and the L.A. fires.

Housing has a long way to go, but was up in Q4. She will take any improvement. They have very easy comps. 

It's a long-term monster he's owned forever. Remains profitable with capital efficiency. Ultimately, it needs to benefit from a home recovery and improvement spend, and that needs lower interest rates. He's patient.

Still buying here. Purchase of SRS broadens its addressable market further. Getting better at e-commerce. Pursuing repair and maintenance segment.

This and Lowe's are quality businesses that he's long owned. Healthy profits and capital efficiency. They will benefit if interest rates decline. Be patient.

It still doesn't sell at 30x PE. If the Fed cuts rates, this will earn more money than people think. Buy at $410-415.

They report tomorrow. Lower interest rates will push sales, and the extreme weather is behind us.

Is the top stock to buy in an interest rate cut cycle, which is happening. (The Fed will decide tomorrow.)

Is both a cyclical and secular growth story and can ride any cycle. It can grown in any environment, and not held hostage to interest rates. It benefits from aging homes (that need repairs), Millennials want to own homes and will spend at HD, and the new home shortage which need pro contractors to build them (who spend at HD).

It's too early to enter HD or Lowes, whose earnings will be lower this quarter than the last as their multiple hovers near historic highs. He needs to see more consumer activity here. He's on the sidelines.

A decade-long theme, not short term is in housing, if interest rates fall from 6.7% to 5.5% (likely in 2025). She prefers Home Depot in this space, since competitor LL Flooring went bankrupt, and HD has easy comparisons. They had 7-straight quarters of negative comps, but will snap that. She expects better gross margins.

Two recent Florida hurricanes will be a tailwind for the homebuilders for the wrong reasons. The right reasons are all these new homebuyers in Millennials. The best catalyst are falling interest rates. 2% dividend has seen 10% dividend growth in the last 5 years, but shares are a little pricey now.

Upgraded today, but lags the S&P this year and hasn't done anything in the past two, because rates were high and housing was soft. They had 7 straight quarters of negative same-store sales. So, comps are easy and profitability is strong. She still likes it, but it isn't cheap.

He sold Home Depot to buy Lowes, because it trades at a lower PE and they execute as well. Managers here used to run HD and apply the same playbook at Lowes. Operating margins in the last 10 years have almost doubled. He exited both stocks given higher PEs and weakening consumers. Would like to re-enter later.

Is up 10% this year. Anything related to housing (and falling interest rates) is doing well. He expects a housing boom. So, HD could enjoy a catch-up rally.