Host of BizRadio and editor of TheMoneyMan Newsletter, Daniel Frishberg sees long-term value in Home Depot (NYSE: HD), noting that the stock is now at the same price that it was in 1998.
He explains, "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."
He points out that back in 1998, Home Depot's sales per share were $13.65. Now he notes, "Sales are are projected for all of 2007 at $48 per share."
Likewise, Frishberg notes that in 1998, earnings were $.71 per share. Today, he notes, they are projected to be $2.85 per share for 2007. Meanwhile, he adds that their shares outstanding have decreased by over 15%.
Likewise, in 1998, the stock's P/E ratio was over 40. Now, he notes, it is around 14. And, he points out, return on equity averages in the mid to high teens. The advisor says, "Here are the three most compelling reasons we like this stock:
1) Based on its historic cash flow multiple, this company could trade at $60 per share
2) 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.
3) It owns most of the real estate its 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.
Frishberg emphasizes that this stock is not being recommended for trading gains. Rather, he says, "We want to be more patient with this stock. The big gains may be back-end loaded, meaning we believe the gains will be very large but may not come for several months."
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