People bargain hunting in today's market need to remember that low prices doesn't equate to value. Cheap stocks are sometimes cheap for very good reasons but if you are selective, you may be able to find some bargains.
Take Home Depot Inc. (NYSE:HD). The No. 1 home improvement chain is struggling and is in the dog house with Wall Street because of the actions of its former Chief Executive Robert Nardelli. The company said today that its earnings this year would go down and sales would be flat as it invests $2.2 billion in fixing up its stores.
When companies announce plans to invest in their businesses, traders dump the stock. But remember, Home Depot shares are already beaten up. They are down 4 percent this year, while better-liked retailers such as Target Corp. (NYSE:TGT) and Costco Wholesale Corp. (NASDAQ:COST) are each up 9 percent.
The stock is cheap. Home Depot is trading at a forward price-to-earnings ratio of about 14, compared with 16 for Target and 21 for Costco. Of course, Home Depot is being hurt by concerns about the housing market, but everyone knows that already. The new Chief Executive Frank Blake also seems to be mending fences with Wall Street.
To make money in the stock market, you have to buy low and sell high. I know that's original observation, but keep in mind that successful investors don't buy stocks that everybody likes because the good news is already factored into the price.
Anyone who buys Home Depot -- and I don't care if you do or not -- or any other low-priced stock today shouldn't expect it to become the next Google Inc. (NASDAQ:GOOG) tomorrow. Investing requires lots and lots of patience and more than a little luck.
Happy hunting everyone.
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Reader Comments (Page 1 of 1)
3-02-2007 @ 8:41AM
Jerry Bluhm said...
I was managing a discount retail store back when Wal-Mart was just a small chain. I remembered how no one seem to pay alot of attention to them. I told my head-quarters that this small up and coming company seem to know what it was doing. They purchased the old Big K stores out of Nashville, Tn and over-night doubled the size of their company. At that time K-Mart was the big dis-counter that Wall-Street and everybody else admired Wal-Mart was not taken seriously until they begain to chip away at K-Marts sales. Finally, they blew by the big giant K-Mart. Home Depot is struggling for a reason right now. Slowing, market share is being taken away by Lowe's. Some have noticed, and written a few things about it, but not much. The last few years Lowe's is moving into the big metro areas where HD's best stores are. What is happening? Lowe's is taking market share. Lowe's has better management and are focussed on the customers, just as Wal-Mart was before and after they passed K-Mart in store size. Now Home Depot is having to back up and work on their older stores. About every five years or so I beleive Lowe's up-dates their existing stores as they continue to build new stores. Soon, Lowe's will slow their expanion I'M sure in the United States, but not before they take a big chunk of HD's business. So, all you WAll_Steet types keep on writing about Home Depot while I purchase more Lowe's stock. Good investing.