Lowes and Home Depot

[wabmester]

Is it time to buy LOW and HD yet?   They both seem to be trading at a low P/E due to housing and consumer spending fears.

I figure that more people will be doing home improvement even if there is a housing bust (they'll make their homes more attractive to sell, and they'll choose to stay put and fix-up rather than move).    During the last housing bust, Lowes and Home Depot seemed to do reasonably well.

LOW is trading at a forward P/E of about 11, price/book of about 2.5, and price/sales of less than 1.

What do you think?

 

[mickeyd]

FWIW, about a month ago Cramer did an analysis on these 2 and noted that HD was about done as far as growth goes but Lowes (due to it's much smaller market share) had a lot of room to grow.

I am in no way implying that Cramer is one to follow on anything at all, however I thought that this small analysis was memorable.

 

[brewer12345]

Cramer did an analysis

Yeah, this is the same guy that said on national television recently that investors should avoid DSX because of their single hulled tankers. DSX does not own any tankers of any description.

 

[dumpster56]

remember Channel Lumber

Remember all those other home improvement stores??

They are all gone.

Home depot, Lowes big box retailers that if gasoline really spikes and the housing market goes poof well they could see real declines and their stock prices will go noplace for a very long time.

 

[LOL!]

There is no way to really know if this is a good time or not.

I have owned HD and LOW off and on this year and in past years. I have been lucky with LOW and unlucky with HD. I bought LOW in July and chickened out last Friday and sold before this week's earnings announcement for a small profit. One might have expected LOW to do well because HD & LOW often mimic each other. Since HD rose on it's earnings announcement, my initial expectation was that LOW would rise also last Monday, but I lost my fortitude on Friday.

LOW is down 10% since I sold. I got very lucky.

There might be a bounce worth playing, but take your profits when you have them with these guys in the short term.

For long term buy-and-holders, I say avoid them right now. The money that folks would use to buy things at these stores is being burned up in their car engines. With housing sales going down, the number of folks who would need to buy stuff is going down as well.

So fundamentally, the numbers may look like buy, if the future is like the past. Unfortunately, the future is not like the past right now.

Not now, but keep a watch on them, IMHO.

 

[lazyday]

I'm holding LOW, bought it perhaps 6 months ago, as a Grantham/GMO pick, believing his "quality is cheap" mantra and generally believing that largecap and growth stocks were underpriced compared to the smallcaps and value funds I usually prefer to own.

You can read a few sentences of his opinion in the quarterly reports online (U.S. Quality fund, GMO.com) and find if the firm overall has been buying or selling lately on the Nasdaq institutional ownership page, if you like.

Haven't been looking closely lately. Suppose if I find something to sell in near future, will have to find a buy, and HD could be a possibility, as could Dell or Citi. Or I could always double down on LOW... luckliy, I only took a half size position in it, so if it drops much more by the time I get around to needing to buy something, I could even triple down.

(I was about to say that I didn't think it was down much from my entry point... but then I checked! )

 

[Hamlet]

I bought LOW today at $26.61.  

They may have a couple bad years if housing and the economy get really bad, but I can't imagine that I will regret buying at this price in 5-10 years.  

Note-- I have avoided buying HD because their current management seems to hold their customers, employees, and stockholders in contempt.  They are incredibly cheap though.  I expect that they could go up 10% simply by announcing that they were canning Nardelli.

Is it time to buy LOW and HD yet?   They both seem to be trading at a low P/E due to housing and consumer spending fears.

I figure that more people will be doing home improvement even if there is a housing bust (they'll make their homes more attractive to sell, and they'll choose to stay put and fix-up rather than move).    During the last housing bust, Lowes and Home Depot seemed to do reasonably well.

LOW is trading at a forward P/E of about 11, price/book of about 2.5, and price/sales of less than 1.

What do you think?

 

[wabmester]

OK, you guys talked me into it. 

I bought some LOW today.

I also bought IWC for some microcap exposure, and XLP because I convinced myself that branded consumer staples will have good long-term growth.

I think that's all the shopping I plan to do until The Fall of 2007.

 

[LOL!]

I couldn't interest you in a little Fastenal (FAST) here, could I?

 

[wabmester]

I couldn't interest you in a little Fastenal  (FAST) here, could I?

Not me. I'm bearish on both retail and construction, but I'm always open to making a small contrarian bet if the valuation looks reasonable and long-term prospects look sound. I know I can't predict the future, but I get nervous when the herd is going in the same direction I am.

 

[Hamlet]

FAST was the first stock I owned. My grandfather gave me 3 shares (at about $20/each) for my birthday in 1990. Those original 3 shares are now 48 shares at about $35/share.

So $60 turned into $1680 in 16 years. A 28-bagger.

They'll pry my Fastenal from my cold, dead hands

I couldn't interest you in a little Fastenal  (FAST) here, could I?

 

[brewer12345]

Hmmm, a home improvement retailer going into a combination housing bust & collapse in consumer spending? No thanks.

 

[rmark]

Lowes is being supported by my current mobile home remodeling project.

 

[Caroline]

I'm in the same boat with you, rmark, only with Home Depot as beneficiary.

If I'd put the same amount into their stock as I've spent on my rental rehab, I'd be majority shareholder by now.

(BTW, these guys are SO disorganzied... it's taken me 5 phonecalls just to disconfuse one credit card payment. I wouldn't buy their stock for that reason alone -- treating customers this sloppily is a recipe for disaster, IMHO.)

 

[maddythebeagle]

I would buy them both.....I like stocks that have "doom and gloom" priced into the stock....that way if only get one or the other....the price will go up....pretty low risk

 

[dmpi]

Is it time to buy LOW and HD yet?   They both seem to be trading at a low P/E due to housing and consumer spending fears.

I figure that more people will be doing home improvement even if there is a housing bust (they'll make their homes more attractive to sell, and they'll choose to stay put and fix-up rather than move).    During the last housing bust, Lowes and Home Depot seemed to do reasonably well.

LOW is trading at a forward P/E of about 11, price/book of about 2.5, and price/sales of less than 1.

What do you think?

First off the whole S&P 500 has a P/E of 14.6, so an P/E of 11 is not that low.
Second, down 20% is not "doom & gloom" pricing. Try something like down 40%.
Third, you got to figure out how people are going to finance their home improvement projects. No more tapping in on the 2nd mortage or anything like that. Credit is getting more costly. Home improvement projects can just be put on hold for now, unless yuo need a new roof or something like that.

Bottom line, wait for more downward movement and then jump in.

 

[rmark]

I've had a Lowes delivery to my property that was 90% wrong - wrong length deck boards, too few 4 x 4's, no 2 x 6's (could have mentioned they were out of stock before selling them to me), etc. And this after I went in with a written list.

Oh well, such is life.

 

[Nords]

Is it time to buy LOW and HD yet? They both seem to be trading at a low P/E due to housing and consumer spending fears.
What do you think?

Hey, Wab, how are those MOVI shares doing?!

I agree that Lowes & Home Depot are trading at a discount. But I wouldn't buy either of them until we start reading about multi-year lows.

And on that subject, Microsoft isn't too far away from where it was eight years ago-- would you buy it today? What about Wal-Mart? Or would you claim that the markets have fundamentally changed their business models, leaving them too big & slow to adapt? Same concerns exist for Lowes & Home Depot, but we haven't seen the real pain start yet. Give it five or eight years.

Just like MOVI.

But I'll take another look at Home Depot when Nardelli goes down in flames.

_________________________________

Separate Home Depot question: Do the employees at your local Home Depot wear aprons or some means of identifying them as employees?

Three times over the last six months I've been accosted by total strangers while I've been browsing the Home Depot aisles. Two of them seemed like intrusive know-it-all handymen eager to brag about their knowledge (not that I'm personally familiar with that stereotype, of course) and I was pretty sure the third was flirting with me. Luckily (in my opinion) she was a woman but my spouse was not amused.

It turned out that all three were HD employees, but they weren't wearing aprons or even nametags. We're not talking about someone who was coming into the store for their shift and stopped to help, or someone chatting on their way home. These were people working their aisles but you couldn't tell them apart from the customers and of course you didn't know their names.

While I'm encouraged at the presence of HD employees actually working their aisles and even possessing some knowledge of their wares, I'd be a little concerned about being accosted by total strangers. Are these workers still trying to earn the coveted orange apron, or is HD too cheap to give their newbies a nametag?

 

[wabmester]

Hey, Wab, how are those MOVI shares doing?!

That was a wild ride.   I made a small profit when I sold on a very odd day.   The price surged to $7.50 one day on no news (possible buy-out rumor, possible attempt by a big buyer to force short covering).   It looked like a nice time to exit. 

I agree that Lowes & Home Depot are trading at a discount.  But I wouldn't buy either of them until we start reading about multi-year lows.

There's no question that buying "deep value" can juice your returns, but deep value isn't always available.   I had a bond mature and wanted to put the money to work right away.   MSFT and WMT look like reasonable values as well.   I wouldn't expect the same sort of returns they got in their hypergrowth days, but I'd expect them to grow as fast as the economy does.   I'm not swinging for the bleachers with LOW. 

 

[lazyday]

What about Wal-Mart? Or would you claim that the markets have fundamentally changed their business models, leaving them too big & slow to adapt? Same concerns exist for Lowes & Home Depot, but we haven't seen the real pain start yet.

How do you think the markets or models have changed on WalMart or Lowes, in ways they haven't yet adapted to?

 

[Nords]

How do you think the markets or models have changed on WalMart or Lowes, in ways they haven't yet adapted to?

I've been watching Wal-Mart get the crap beat out of their attempt to export American merchandise & business practices in Germany and Japan. Back home, they're heavily pressured by the unions and legislated against by the communities (for example in Kapolei) and struggling to adapt from fast growth to incremental efficiency gains. Heck, retail sucks so badly that they're entering banking & healthcare!

Lowes and Home Depot are both going to get hurt in the housing downturn. When the new homes stop going up, they'll stop selling plants & yard equipment and kitchen improvements to millions of new homeowners. When the contractors aren't building those thousands of new homes, they'll be fighting each other for the smaller jobs and chewing away at the home-improvement store's margins.

I'm not saying that both industries are dead, only that they've reached the end of the hockey stick for growth and are contemplating the grim futures of commodity businesses with nowhere left to expand. It's hard to make their stocks look as attractive as other large-caps paying 2-3% dividends.

I know Lowes stores vary all over the bell curve, but I watched them take over a local chain (Eagle Hardware), drive off all the employees who actually knew anything or gave a darn, and spend untold sums reorganizing the store to make sure that the rest of us couldn't find anything. Then they had to raise prices to improve margins, but they couldn't figure out why no one wanted to shop there anymore.

Luckily Nardelli is busy saving Lowes from a grim fate... as long as he doesn't take Home Depot down with him!

 

[mathjak107]

im in the electrical distribution business...we had a home depot open in a shopping center across the street,,..we thought they would hurt us bad.....actually the brought tons of traffic to the area and while they carried maybe 2500 electrical items we carried 16,000..........business was fabulous for us....with their limited knowledge and lines customers flocked to us for the higher margin more technical items.....

 

[lazyday]

I think WMT has room for growth.

They still have under 50% share in U.S. for their main biz, don't they? (I haven't checked recently)

And, they could always expand into midscale or upscale like Whole Foods' business for example, or as you say banking, healthcare, insurance, the world.

Or perhaps it would be better to slow down the investment a little, and turn into a big profitable cash cow?
Their growth numbers aren't that bad even without reaching into new markets.

Some of the overseas ventures were unfortunate. If expansion is necessary, I'd have thought would make more sense in U.S. where may have cannibalism to control, but already have infrastructure in place.

For example, as a consumer, I'd love to see WMT offer an alternative to Holier-Than-Thou Whole Foods, which pretends to be a health food store, but sells overpriced, saturated fat packed, high calorie, often poor nutrition, ofen overly processed foods, from some of the same manufacturers that supply to Walmart. And they don't do as good a job of keeping their stock fresh!
I actually think it's already easier to eat healthy on $100 at Walmart than $150 at Whole Foods. (Though with unlimited funds, you would be able to eat healthier at Whole Foods. Today...)

It could be hard for WMT to do the marketing job on customers that Whole Foods has though.

Or is that even needed? Maybe enough people are pragmatic, that they don't have to believe the company is some great fluffy do-gooder? They just have to care about the health of their family and pocketbook.

(wow, I hijacked my own post)

 

[brewer12345]

I think WMT is in for a world of hurt when (not if) China allows the Yuan to appreciate against the USD.

 

[Nords]

I think WMT is in for a world of hurt when (not if) China allows the Yuan to appreciate against the USD.

Along those lines, I'd like to know more about Wal-Mart's sale of McLane to Berkshire Hathaway a few years back. I suspect there were more problems at Wal-Mart than appeared in the press releases, and I wonder if McLane is still doing as much business with Wal-Mart...