Monday, February 1, 2010

Home Depot Your Next Great Investment

Say you have to buy some paint to add some pep to your livingroom, where are you going to go?

If Home Depot even crossed your mind (just in case you said Lowes), you've just realized the hedge to this investment. Right now, Home Depot is severely undervalued in relation to its long term prospects. The reason why its down is because home improvement projects took a dive when the housing market dropped. Why do home improvement if your not planning on selling anytime soon?

The fact of the matter is that Home Depot has a huge market share, contested only by Lowes. Its brand equity serves as a great hedge against long term risk exposure, in addition to the housing market already having been through the worst. And surprisingly, even though earnings are down for HD, free cash flow is at some of its highest levels even compared to years with stronger revenue growth. Management's refocusing on merchandising also will serve to lower expenses and capital expenditures to help that free cash flow figure grow.

As I step down from my soapbox, I will be adding this holding to both my own and my girlfriend's portfolios.