One Year Update on my "Home Depot, Your Next Great Investment" Post

Just wanted to give an update on one of my postings I wrote about a year ago on February 1st, 2010 regarding Home Depot as your next great investment. At the time of the posting, the price was at $28.01, almost a year later the stock is up to $36.02. If you had bought it at the time I recommended it and sold it today, you'd be looking at a 29% annual return on your investment, which is double the average return of the whole S&P 500 (~14%)

Technically, you'd want to wait until February 2nd to sell it, that way you would be taxed at the long term capital gain rate (I think its 10% right now?), rather than short term capital gain which would be taxed at your income bracket (probably 20-33%). 

Now if only we could get a 29% return on every investment, we'd all be millionaires in no time. ;o)

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.