Home Depot (HD): Safe, steady play on the housing market

By Timothy Lutts, Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 9/6/12 Sign up for free Cabot Wealth Advisory e-newsletter

Today’s featured stock is Home Depot (HD) a store that I seem to visit several times a month.

Admittedly, the days when HD was a market leader are long gone. But if you’re looking for market exposure with low risk, and the thoughts of a 2.1% dividend make you consider shifting out of some bonds, it’s worth a look.

Here’s what editor Mike Cintolo wrote in a recent issue of Cabot Top Ten Trader.

“Home Depot … represents the large liquid play on the rebounding housing market. The catalyst for the stock’s recent resumption of its major uptrend was the firm’s solid second quarter report–in the three months ended July 31, revenues were up just 2%, but earnings rose 17% (beating estimates by a few cents) and management hiked its fiscal year outlook above expectations. (Analysts now see earnings up 20% this year and 14% next). While those growth figures aren’t extremely exciting, the fact is that Home Depot is a safe, steady play on the recovering housing market; the combination of higher new housing starts (up 40% from their multi-decade lows) and a pickup in existing home sales should continue to translate into higher sales and earnings for the company. Moreover, the firm plans to pay out half its earnings in dividends.”

Looking at the chart I see the long uptrend since early 2009–in sync with the broad market–capped by a pause between 56 and 57 over the past three weeks. Buying here would be okay, but I’d feel even better getting in on a pullback to its 50-day moving average, now at 55.

Even better, you could take a no-risk trial subscription to Cabot Top Ten Trader to get Mike’s latest advice on investing in HD and other high-potential market leaders. Details here.

Home Depot (HD): In an impressive uptrend

By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 6/14/12 Sign up for free Cabot Wealth Advisory e-newsletter

My stock picks in CWA are often small foreign stocks that no one has heard of, and that’s a fun thing to do. It broadens peoples’ horizons.

But today I’m recommending a U.S. large-cap that has operations across North America, plus Puerto Rico, the Virgin Islands and Guam, and is dipping a toe into the waters of China.

The company is Home Depot (HD), the building materials giant that sells everything a contractor, home-owner or do-it-yourselfer needs to build an entire home or just change a faucet washer. Remodeling supplies like plumbing, electrical and kitchen gear contributed 31% of fiscal 2011-12 revenue, with hardware and seasonal needs like gardening bringing in 29%. Building materials and lumber made up 21% and paint and flooring made up the remaining 19%.

Home Depot’s string of more than 2,250 stores has been through a long dry spell, with revenue being hit by single-digit declines from fiscal 2007 through 2010 (the company’s fiscal year ends in January). But 2011 and 2012 have shown gains of 3% and 4%, respectively, and earnings were up a relatively robust 39% and 30% during the two most recent quarters. Home Depot is a mature business and a widely held stock (it’s a component of the Dow, and institutional holders number nearly 2,000), so I don’t expect any romance-phase blastoffs.

But the housing industry in the U.S. has been in the doldrums for years, and Home Depot’s return to revenue growth is likely a good indicator of returning health in that sector. While remodeling and renovation have kept the company growing, a solid recovery in new housing starts would be a huge boost for the building materials segment.

HD has been in an impressive uptrend since it put in a V-shaped bottom in August 2010 at 29, and the stock’s uptrend has been constant, with volatility decreasing until the stock’s peak at 53 in early May. A quick three-week plunge to 47 reset the ticker on the stock and it has since moved right back into position to challenge that May high. With a forward annual dividend yield of 2.2% and a good foundation in the recovering U.S. housing market, Home Depot looks like a prudent choice.

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