A Commentary on Home Depot

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Before we dive into my analysis, since this is my first post here, I'd like to provide a trail of who I am and where my opinions come from.  

My name is Chris and I am a 25-year old Treasury Analyst who's been in the market for the past eight years.  I started buying stocks in high school, graduated to penny stocks and then options in college and have now come full circle and have dividend stocks in my 401K.  I was too young for the wealth generator that was the tech bubble but I got to enjoy the 2007-08 crashes and the recovery that followed.  I have studied numerous investing styles and have ended up with a weird blended approach in my own investing (which includes technical analysis, value and/or momentum, and just buying what you know).  I hope to provide useful updates, insights, or just entertainment in the coming blogs.

For my first bit of market commentary, I would like to talk about Home Depot (NYSE: HD): At $45 it's near multi-year highs, and for the orange faithful a return to pre-crash doldrum levels (where it used to fluctuate between $40 and $44 for almost two years).  

Home Depot is a long-term stock that I love given the emphasis on dividend payout growth, limited debt, and strong cost reductions.  It also has some international exposure that it's looking to grow, which won't do much in the short term, but should drive value in the coming years.  Mexico is still a very strong business unit and I think that success will follow HD as they look further south.  

While I hesitate to recommend the stock given its huge runup from the low $30s to mid $40s over the past six months, I think there is a strong case for this company for those with a long time horizon.  Even with the runup it's yielding 2.5%, and management has already committed to increasing the payout in the coming years.  

The weakness in the economy has still weighed heavily on the sales numbers, but the company has done impressive things to remove cost and dead weight from the system and has managed to increase margins and maintain profitability.  HD also manages Wall Street expectations well, having not missed an earnings number in years (who likes unpleasant surprises?).

While recent positive news has been priced into the stock, any further uptick in economic numbers, or more importantly housing numbers, will bode will for HD.     


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