Home Depot (HD)

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.

The homebuilders and related stock ran up a lot ahead of Jay Powell's Jackson Hole speech last Friday when he announced rate cuts coming. Let this come down before buying. He's watching this because of lower rates coming.

Sales growth not growing. Hard to justify investing at this time. Lower interest rates good for business. Waiting for valuation to bottom out before investing. Strong business with good brand name. 

Aggressive pursuit of pro consumer and 1-stop shopping proposition is helping take share, not only from LOW, but also from general suppliers. Acquisition of SRS takes them into pools, roofing, landscaping; expands its addressable market opportunity. Yield is 2.4%.

Core competitive advantages include expertly knowledgeable floor staff and expanded e-commerce and omnichannel capabilities. 17% compound growth rate over the last decade, bolstered by big share buybacks from time to time. Still 12% off 2021 peak. Trades at 24x earnings. Good combo of value and growth.

The home improvers thrived during the pandemic, then the consumer pivoted to services. Now, this has normalized and as interest rates declined, hone projects will pick up. These type of retailers tend to improve before 1-2 quarters before the Fed cuts then keep doing well. HD has done helpful acquisitions and it focuses on their pro customers. Two tailwinds. It pays a 2.5% dividend, which they never cut.

Wasn't a great quarter, but gross margins beat though the topline was soft. We've seen a bottom, so it's time to get it.

Leg into this slowly. Expect a few more challenging quarters, while their PE is a little high. Even rate cuts won't trigger a bounce in the housing market. In the US, the mortgage rate has fallen from 7% to 6.5%, but the 30-year mortgage is under 4%. A better leading indicator is the price of lumber.

It trades at a stretched 23x PE, but easy same-store comps are coming, profits are amazing, a recent buy is synergistic, and self-help is increasing market share.

Interest rates are dropping but the US consumer is weakening, conflicting trends. This and Lowe's have done okay in recent weeks only because rates are starting to drop and this won't return them to glory days. Wait and see if there's a recession around the corner, then maybe buy them as an early-cycle stock. He likes the homebuilders though.

He'll buy more given share buy backs and strong dividend growth. Was up 11% in Q2. Will benefit if interest rates decline.

High quality. With high interest rates, seeing weakness in terms of large projects. But things are starting to normalize. Looking ahead a year from now, interest rates will probably start trending down and historically low housing starts should improve. Recent acquisition of SRS diversifies its offerings.

Long-term trend is still positive. Over half US housing stock is over 40 years old, so if interest rates make it too costly to move, you have to do some repairs. Still lots of 18-35 year olds living at home, and they need to move to their own places. Immigration is positive as well. Attractive yield of 2.62%.

One of his two choices in the space. Prefers the providers of building supplies rather than homebuilders themselves.

Owned HD 25 years ago. Took profits 10-12 years ago, and switched to LOW. Based on LOW successfully adopting the HD playbook to grow gross margins, and on valuation (LOW was 4 multiple points lower than HD). HD is now trading at a low 20s multiple, and LOW is about 17x. 

Out of both right now. He became skittish on consumer. It's not they've been poor performers, but the new choices have rewarded clients to a better extent.

Great companies, great franchises. Always looking for an entry point, it's not yet. HD reported this morning, shy on revenue, mentioned consumer pulling back. He wouldn't be surprised to be in one or the other in the not-too-distant future.

Pays a 2.6% dividend and boasts $18 billion free cash flow.

Shares down 16-17%, near 200-day MA, opportunity. Very strong brand reputation, dominant market position. Very consistent revenue growth. Short term, still sees pretty stable US housing market, consumer confidence remains stable. US labour market remains steady, with low unemployment. Interest rates will be lower at some point. Yield is 2.7%, very consistent dividend increases.

Homes are aging, shortage in home inventory, home prices still going higher. Very resilient during downturns, home maintenance needs continue regardless of what's going on.