Renovate Your Portfolio with Home Depot
Wednesday, June 13th, 2007
By George Leong, B.Comm. for Profit Confidential
The housing market is in a slump, but if interest rates move lower we could see a rebound in prices, albeit probably not to the same degree as recent years when the U.S. housing market reported superlative growth with strong housing starts and home sales. Prices in prime areas of the country had seen incredible price increases.
But that was then. Home sales are faltering, as are housing starts and permits. The trend is down, but an area that I continue to like is the home renovation area.
In this area, I like large-caps Lowe’s Companies Incorporated (NYSE/LOW, market cap: $48 billion) and The Home Depot Incorporated (NYSE/HD, market cap: $74 billion).
Home Depot, the country’s largest home-improvement store chain, makes more sense to me because of its international exposure and expansion plans. Besides the U.S., retail outlets are found in Mexico and Canada. The company is also attempting to expand in China, which I view as an excellent strategy to take advantage of the strong housing market there.
As I have said in recent commentary, Home Depot is the stock to own in the home-improvement area. Also, in an effort to diversify its revenue stream, Home Depot has a five-year plan to shift some revenue away from retail to its unit that serves professional contractors. This will mean fewer store openings. In addition, Home Depot is looking at setting up gas stations at some of its stores and is currently testing this. If successful, plans call for up to 300 gas stations by 2010.
The company may be experiencing some growth issues at this time, which is not unusual for large companies as they get bigger. But at the end of the day, I would own Home Depot. The valuation is reasonable but is not as good as Lowe’s, yet I believe Home Depot’s global view to growth is a major advantage going forward.
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Tags: china, interest rates, U.S. housing market
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.



