Taking a Look at Home Depot

I have been out shopping the neighborhood for good non-tech plays and I found another one.

You are going to think that I am completely MAD by thinking about this trade right now. But I’ve gotten used to that by now.

If you had to pick one sector of the 100 or so that Standard & Poor’s tracks, that is universally hated by all traders and investors, it would have to be the retailers.

Widely viewed as headed for the dustbin of history, many retailers are not going to make it to Christmas, let alone stay in business through 2025.

Do any value screen of all listed stocks, and about half of all the bargain stocks are found in the retail industry.

These are the buggy whip manufacturers of 1901 before they got run over by the auto industry.

Of course, you can blame Amazon, which is rapidly taking over all sales of everything in the US. They have about a 50% market share of all online sales. No wonder the government is going after them with an antitrust case.

This is thanks to their cutting-edge technology and massive economies of scale.

Amazon is probably the number one job destroyer in the US today, with some 5 million retail jobs on the chopping block over the next five years.

However, there is one safe haven that so far seems immune from Amazon’s appetite and that would be Home Depot (HD).

I am using the recent 18% sell-off in the shares to look at (HD), which is occurring, not because of anything Home Depot did, but because of higher interest rates for longer.

Longer term, I think Home Depot will continue to appreciate, as the housing and remodel boom will take off like a rocket once interest rates DO fall. That could be in four months….or sooner.

Then we will have a home remodeling boom that has years to run, and possibly decades. The more expensive homes get, the more inclined owners are to fix up their existing digs. They go to Home Depot to do that.

If you want to make a safer play, buy the iShares US Home Construction ETF (ITB) on this dip, which gives you broader exposure to the real estate recovery and has a much more solid bottom.

Baskets of shares always have lower volatility than single stocks, but lower returns as well.

We just have to give the market a chance to have a few more heart attacks before the current correction ends.

Home Depot is in a tiny retail niche that has so far avoided the Amazon onslaught. There are many reasons for this.

When you need a particular screw, lighting fixture, or unique plumbing part, calling Amazon will get you absolutely nowhere.

You need (HD)’s sympathetic, knowledgeable customer service people, usually retired contractors themselves, to point you in the right direction and assist with a few helpful suggestions.

They’ve done this for me a million times.

Home remodeling and repair is also an industry where a premium is paid for making parts available NOW! A burst pipe won’t wait for an Amazon priority delivery, nor will a leaky roof or broken sprinkler head.

A lot of independent contractors are now not even able to plan supplies weeks or months in advance. They buy what they see.

The home repair and remodel boom will continue, as it is the working man’s solution to high home prices, especially on the coasts, as the profusion of home repair YouTube videos testify. You can fix ANYTHING on YouTube.

While Home Depot recently reported annual revenues of $34.79 billion, up 2.92%. Operating income was reported at $4.8 billion, up 12.82%. Net income came in at an impressive $2.8 billion, up 16.69% YOY. Yet, you get a low 22.7 times price-earnings multiple typical of retailers.

They should do much better in the spring Q2 reporting season. We will know for sure when the company reports on Q2.

This gives us a great discount entry point for a super long-term company, which doesn’t care what the US dollar is doing, which will soon be falling.