Thursday, May 10, 2007
MoneyMan shops for value at Home Depot
Host of BizRadio and editor of TheMoneyMan Newsletter, Daniel Frishberg correctly forecast the previous downturn and then became one of the market’s more aggressive bulls, calling for a move back to new highs.
In line with his view that the domestic economy will surprise on the upside in coming months, he is now recommending Home Depot (NYSE: HD) for longer-term value investors.
“Our latest recommendation is a company that will truly be a value play. Home Depot is a company which is at the same price now that it was in 1998.
“There were several management issues which have been resolved and a slumping housing market which we believe is stabilizing and will recover the rest of this year and into next year.
“Home Depot's stock is just under $39 per share which is where it was in late 1998. Back then, their sales per share were $13.65. They are projected for all of 2007 at $48 per share. Their earnings (profits) were $.71 per share.
"They are projected for all of 2007 to be $2.85 per share. Their shares outstanding have decreased by over 15%. Their P/E ratio was over 40 and is now around 14. The return on equity is average in the mid to high teens. Here are the three most compelling reasons we like this stock:
- Based on their historic cash flow multiple, this company could trade at $60 per share
- Private equity continues to take out large companies they believe are a value for big premiums and Home Depot has been rumored in these buyouts.
- They own most of the real estate their buildings sit on which is probably undervalued by investors. Sears went through this as well a few years ago and the stock ran up tremendously once investors realized the value of all that real estate.
“We want to emphasize that we will be more patient with this stock and the big gains may be back end loaded meaning we believe the gains will be very large but may not come until the next couple of months.”
posted at 11:10 PM
