There is a lot to like from the Home Depot (HD) quarterly earnings which were released this morning. The numbers were strong enough to give the futures markets a nice bump and the more we dig through the figures the more bullish we become of this housing recovery...and we were already pretty big bulls. Home Depot did point out that they continue to see improvement in housing markets hardest hit by the "Great Recession" and also saw sales to clients who are contractors rise faster than sales to consumers for the first time in roughly five years. That is the type of bullish news that investors are looking for and if we continue to get solid results this week from others in the industry then we could see this sector head higher and possibly test all-time highs which are not that far away.
Chart of the Day:
The recent rally in the Nikkei failed to take out old highs and now each subsequent new high has been lower than the previous high while the recent lows have been lower than those set before. It is a small sample, but the trend is developing and if we take out the lows set in June then Japan may very well be facing some serious issues.
(Click to enlarge)
Source: Yahoo Finance
We have no economic news due out today as the first data for the week is due out tomorrow.
Asian markets finished down today:
- All Ordinaries -- down 0.66%
- Shanghai Composite -- down 0.62%
- Nikkei 225 -- down 2.63%
- NZSE 50 -- up 0.11%
- Seoul Composite -- down 1.55%
In Europe, markets are lower this morning:
- CAC 40 -- down 1.43%
- DAX -- down 1.00%
- FTSE 100 -- down 0.56%
- OSE -- up 1.02%
Housing
Not so long ago we walked away from the Whirlpool (WHR) trade that had worked so well for readers and clients because the chart was not looking real healthy and in fact appeared to be "toppy". There was a pullback but the shares have since rebounded and after the quarterly results from Home Depot we think that looking at Whirlpool on any sort of a pullback would be prudent. Yes the housing market does not seem to be able to gain enough traction to hit on all cylinders at once, but the fact of the matter is that we continue to see green shoots and the market as a whole continues to improve. So long as housing continues to improve when viewed as a whole it does appear that names we have liked such as Whirlpool and Bed, Bath & Beyond (BBBY) should be able to perform well.
The stock has rebounded from lows and it appears that the shares are back to performing like the old Bed, Bath & Beyond.
(Click to enlarge)
Source: Yahoo Finance
Just to lay our timeline out, we expect that Whirlpool would benefit from the early cycle as most people seek to have washers and dryers included in their houses from Day 1 or very early on and then to move on to retailers such as Bed, Bath & Beyond or The TJX Companies' (TJX) HomeGoods stores to furnish and decorate their homes. This is a rotation investors will need to time, but better to time it early than too late.
Retail
Investors were foolish to have doubted this brand. Yes, Amazon (AMZN) could beat them on price but Amazon will never be able to beat them on experience - and there is a premium consumers are willing to assign that experience.
(Click to enlarge)
Source: Yahoo Finance
We received some emails recently asking U.S. to update readers on our thoughts on PetSmart (PETM), a company we went bullish on when they missed earnings a few quarters ago. There was a lot of talk about the company having to face stiffer competition from Amazon and other online retailers but we felt that this missed the point. You cannot take your dog for instance to an Amazon warehouse and expect to receive dog training lessons or even be allowed to let your dog sniff around for their next bucket of treats or a new toy. It is a convenient one stop shop for all the pets one may have and offers extras which online retailers cannot match. Yes it may have higher prices, but Target (TGT) has done just fine offering higher prices than competitors and so too have names such as Whole Foods (WFM) and Trader Joe's. We remain bullish of the name and believe that as the housing market improves and more new households are created that we will see more pets and higher spending on these pets.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
