The Home Depot (NYSE: HD) shares are trying to find their way today as investors digest Federal Reserve Chair Ben Bernanke's testimony on the state of the economy before the Senate Banking Committee. Investors are worried that inflation and weakness in credit markets will continue to drag down the economy and were less than impressed by this morning's PPI numbers. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on HD.
After hitting a one-year high of $40.75 last July, the stock has hit a new one-year low today. This morning, HD opened at $21.39. So far today the stock has hit a low of $20.76 and a high of $21.69. As of 12:10, HD is trading at $21.47, down $0.06 (-0.3%). The chart for HD looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $27.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in four months as long as HD is below $27.50 at November expiration. Home Depot would have to rise by more than 26% before we would start to lose money. Learn more about this type of trade here.
Bed Bath & Beyond (NASDAQ: BBBY) reported Q1 earnings on Wednesday, and Trey Thoelcke highlighted the numbers in this earnings-recap piece. Shares rose substantially in the after-hours trading session yesterday, jumping over 8%, and as I reviewed various earnings reports last night, I found myself drawn to the retailer's stock performance. I haven't been a huge fan of Bed Bath & Beyond as of late, so I figured I should take a look at the earnings release to see if there's anything here that would change my opinion.
Unfortunately, there isn't. Sales may have grown 6%, and expectations may have been beaten by $0.03, but net income still dropped over 20% to $0.30 per diluted share. Cash flow from operations declined 44% to $65.8 million. And same-store sales were very anemic, rising only 0.8%.
I choose, in this case, to focus on those figures. I also consider the fact that Bed Bath & Beyond does not pay a dividend, and that we are in an awful economic environment, both from a consumer and stock-market standpoint. This is not the stock I'd want to face the recession with, and I don't necessarily find it to be a big value right now. When it comes to retail, I am more likely to look at Wal-Mart (NYSE: WMT) and Target (NYSE: TGT). I'd even consider a Home Depot (NYSE: HD) or a Lowe's (NYSE: LOW). All of these stocks pay dividends and have better brand equities and more attractive prospects. Bed Bath & Beyond certainly didn't deliver an earnings bomb, but I'm still not inclined to put money here.
Disclosure: I don't own any company mentioned; positions can change at any time.
In his Wall Street Strategies, the leading advisor -- and well-known panelist for Fox Business News -- explains, "The debate on which is a better investment, Home Depot or Lowe's, is now at a crossroads following the release of 1Q08 earnings results from each firm.
"As expected, both companies reported year on year earnings decreases as slowing home remodeling spend weighed on comparable store sales.
"Back in 2005-2007, Lowe's was hot the investment choice relative to Home Depot, with many citing its stronger operating margins and friendlier store shopping environment. Although Lowe's is still attracting higher income customers as a result of solid merchandise offerings and customer service, in our view one should crunch the numbers.
"When they do, it will become prevalent that Home Depot is the stronger investment in the niche at this time. The company has been ahead of the game with respect to Lowe's in drastically reducing capital expenditures and store operating outlays.
"Moreover, it has taken the fight back to its smaller rival in the area of customer service and product presentation. In our opinion, play the underdog card and look to invest in Home Depot in upcoming months given more attractive valuation."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
Sometimes one company cannot be discussed without another entering the conversation. The Home Depot (NYSE: HD) reported a 66% drop in first-quarter profit Tuesday, largely due to a one-time charge and continued weakness in the housing market. Only a few days ago, Lowe's Co. (NYSE: LOW) reported sizable losses too.
"Weakness in the housing market" -- in many places that is a gross understatement, since there is no market and they are giving houses away. There are places where home sales have stabilized, and based on April figures it appears that home construction was up when including apartment development. But there are still millions of single family homes and condominiums available at fire sale prices.
Atlanta-based Home Depot said it earned $356 million, or 21 cents a share, in the three months ending May 4, compared to a profit of $1.05 billion, or 53 cents a share, a year earlier. It announced earlier this month that it was putting the brakes on some of its expansion plans and said it would do what was previously unthinkable -- close 15 of its flagship stores. The move, to be completed by July, affects 1,300 employees
Lowe's (NYSE: LOW) reported Q1 earnings on Monday, and I'm sure a lot of investors looked to this report to see if it indicated how the economy was doing. I hope not too many people were looking to link the economy with the company's numbers, however, because they weren't the greatest.
Top-line sales declined about 1% to $12 billion. Net income dropped 15% to 41 cents per share. Perhaps worst of all, same-store sales plummeted 8.4%. So, with flat revenues and a declining bottom line, was there anything positive about the earnings release? Yes. According to Briefing.com, Lowe's beat expectations by a penny (it did miss on the net-sales number, though). Also, the cash-flow statement shows that the retailer is doing fine in terms of the green. Lowe's generated $2.5 billion from operations this quarter versus $2.1 billion in last year's comparable period. So all is not lost.
But make no mistake, this is a tough environment for Lowe's and its enemy, Home Depot (NYSE: HD). However, if you think you want to get in Lowe's at some point, now could be the time, assuming you are a long-term thinker. The company's shares have bounced off their lows of the year and are still off from their highs. As we all know, the economy will get better at some point, and Lowe's will ultimately benefit. Both Lowe's and Home Depot are not that expensive, in my opinion, and both are probably worth some due diligence.
Disclosure: I don't own shares in any of the companies mentioned here; positions can change at any time.
UBS initiated Interpublic Group (NYSE: IPG) and Omnicom Group (NYSE:OMC) with Buy ratings and an $11 target and $62 target, respectively. The firm views valuation as attractive.
Home Depot, Inc. (NYSE: HD) will be trimming its human resources staff soon, according the the company. The largest home improvement retailers in the U.S. seeks to trim its HR staff by a total of 1,000 employees, with the goal of having more help on its sales floors instead of on administrative tasks.
Home Depot officials said that it won't be handling human resources issues on a store-by-store basis any longer, opting instead to handle employee HR from a district-wide perspective. It will shift HR tasks mostly to telephone-based support and will be adding 200 people for a new human resources call center, according to the company.
Is this a wise move? It will save the retailer costs from a headcount burden at each store that may not be the best use of its labor force, but then again, having HR in-store does probably have an advantage. Maybe it's not enough from a cost perspective. If the retailer can shift more headcount to the sales floor, that is always a good thing.
In addition to the HR personnel moves, the retailer said that it will shift stocking crews at some of its stores from the overnight shift to the day shift, as there just isn't enough work for some overnight crews at this time. Since the mortgage mess continues to spook the entire country at this time, home improvement retailers are seeing a good brunt of the mess.
After hitting a one-year high of $41.19 in June, the stock hit a one-year low of $23.77 in January. This morning, HD opened at $26.68. So far today the stock has hit a low of $25.81 and a high of $26.88. As of 12:45, HD is trading at $25.96, down $0.80 (-3.0%). The chart for HD looks bullish but deteriorating, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
This year, the International Trade Commission is set to issue rulings on whether Samsung and Nokia Corporation (NYSE: NOK) have infringed patents from InterDigital Inc (NASDAQ: IDCC). If InterDigital, who licenses its patents to iPhone maker Apple Inc (NASDAQ: AAPL), wins, fees from the deals could double its revenue over the next few years, the Wall Street Journal contended.
According to FDA commissioners, the New York Times reported that Baxter International Inc's (NYSE: BAX) critical blood thinner heparin, which has been linked to nearly 20 deaths and whose base was created in China, contained a "possibly counterfeit" ingredient that "mimicked the real drug."
In his opening arguments in the state of Alaska's lawsuit against Eli Lilly & Company (NYSE: LLY), an attorney for the state alleged the drug maker failed to warn doctors and patients of dangerous side effects associated with its drug Zyprexa, the Associated Press reported.
After home improvement retailer Lowe's Cos. (NYSE: LOW) posted a 33.4% decline in its fourth-quarter profit yesterday, it was its main competitor Home Depot Inc. (NYSE: HD)'s turn to step up to the plate and impress Wall Street. As Trey Thoelcke discussed, the world's largest home improvement store chain managed to top estimates only once in the past six quarters, and current earnings numbers were not too encouraging either.
Home Depot reported that its quarterly profit slipped more than 27% to $671 million as the slumping U.S. housing market brought the first annual decline for the company's sales. The retailer posted earnings of 40 cents a share, falling short of analyst estimates for a profit of 43 cents a share.
Looking at revenue, Home Depot saw an increase of 1.5% to $17.66 billion, up from $17.4 billion a year earlier, as the largest U.S. home-improvement retailer benefited from an extra week during the quarter. Excluding that, sales would have dropped 4.7%. Analysts forecast revenues of $18 billion for the quarter, according to Thomson Financial.
TheStreet.com's Jim Cramer says it could be part of a strategy to pounce when the economy sagged. Lowe's can take the pain; Home Depot can't.
Maybe Lowe's (NYSE: LOW) (Cramer's Take) sees what we saw this morning: A Home Depot (NYSE: HD) (Cramer's Take) that's a shadow of its former self. Maybe LOW is pulling a Verizon (NYSE: VZ) (Cramer's Take) and just going out to destroy the competition with lower rates and short-term hits to performance.
Yesterday I was torn between what really drove up the price of Lowe's: the January low point with February showing some improvement, or an overall belief that the early cycle is starting and the economy has bottomed courtesy the Fed rate cuts. The reaction last night to Nordstrom (NYSE: JWN) (Cramer's Take) was similar: terrible earnings but hope that things will get better. It's is now well above where it hit its low and it is hard for me to believe that it could go back there.
You couldn't tell which theory was winning out for either Lowe's or Nordstrom because I am sure you had buyers of both plus the ubiquitous short-sellers who lurk everywhere and are prone to cover on a moment's worth of positive price action (as we saw in Goldman Sachs (NYSE: GS) (Cramer's Take) yesterday before a new round of estimate cuts, courtesy special purpose vehicles that some alleged cognoscenti will claim they saw coming).
I'm sure the downtrodden stock market has brought sadness to many people. As someone looking long term I am trying to put the current market into perspective. 'My pal Warren' always says that truly astute investors should actually be happy when the market is down because they are able to buy things on sale. I agree, so what to buy?
Three of the stocks I have been following fall into very different arenas. One is being severely affected by the housing market and familiar to the average consumer. The second might be a familiar name but not a daily haunt by the average consumer. The third falls into the middle ground and is a solid company and favored by Warren Buffett who owns shares through Berkshire Hathaway (NYSE: BRK.A).
It's been a while since I wrote about The Home Depot, Inc. (NYSE: HD). My optimism last year about the company proved misguided as the stock tread water most of the year and then took a dive as earnings reports deteriorated. When I originally commented on HD 14 months ago it was trading at $39.73, finishing the year at $26.27 for a loss of 33.88%. It started with a 2.31% yield .
Home Depot, Inc (NYSE: HD) stock is falling with the broader market this morning after the Federal Reserve reported that industrial production increased by only 0.1 percent in January, in line analysts' expectations. This news, combined with Ben Bernanke's warnings of a sluggish 2008 in Congressional testimony yesterday, has investors feeling bearish about the prospects of the economy avoiding a recession, which will continue to hurt HD. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on HD.
After hitting a one-year high of $41.85 last February, the stock hit a one-year low of $23.77 in January. This morning, HD opened at $27.67. So far today the stock has hit a low of $26.96 and a high of $27.67. As of 12:30, HD is trading at $27.15, down 36 cents (-1.3%). The chart for HD looks bullish but deteriorating, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a May bear-call credit spread above the $32.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in three months as long as HD is below $32.50 at May expiration. Home Depot would have to rise by more than 18% before we would start to lose money.
HD hasn't been above $32.50 since October and has shown resistance around $30.50 recently. This trade could be risky if the US economy stages a recovery, but even if that happens, this position could be protected by resistance HD might find around $30, where the stock topped out in the past month.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in HD.
MOST NOTEWORTHY: The U.S. retail sector and Occam Networks were today's noteworthy upgrades:
Bernstein upgraded the U.S. retail sector to Overweight from Market Weight on valuation, as they believe shares now reflect any likely deterioration in earnings growth following the recent sell-off and that further downside is limited even in the event of a recession. In conjunction with the sector upgrade, Bernstein upgraded Lowe's (NYSE: LOW), Home Depot (NYSE: HD), Bed Bath & Beyond (NASDAQ: BBBY), Williams-Sonoma (NYSE: WSM), Kohl's (NYSE: KSS) and Macy's (NYSE: M) to Outperform from Market Perform.
Merriman upgraded shares of Occam Networks (NASDAQ: OCNW) to Buy from Neutral on valuation and the company's contract win with Fairpoint Communications (NYSE: FRP). They believe shares could trade back toward the 1x revenue level, or $5-7 per share.
OTHER UPGRADES:
RBC upgraded Suncor (NYSE: SU) to Outperform from Sector Perform.
The Home Depot (NYSE: HD) shares are trying to find their way today as investors digest Federal Reserve Chair Ben Bernanke's testimony on the state of the economy before the Senate Banking Committee. Investors are worried that inflation and weakness in credit markets will continue to drag down the economy and were less than impressed by this morning's PPI numbers. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on HD.
"Which is the better buy among the leading home retailing stocks -- 
Sometimes one company cannot be discussed without another entering the conversation. 
.gif){kind=logo}
.gif){kind=logo}
I'm sure the downtrodden stock market has brought sadness to many people. As someone looking long term I am trying to put the current market into perspective. 'My pal Warren' always says that truly astute investors should actually be happy when the market is down because they are able to buy things on sale. I agree, so what to buy?
Lowe's.gif){kind=logo}
For blue chip buyers: 'This too shall pass'
With the Fed Funds rate at 2%, why are mortgage rates so high?
Cramer on BloggingStocks: Banks fail to raise money when they could 
