Home Depot A Better Bet Than Amazon?

Feb.21.12 | About: Home Depot, (HD)

Interested in buying a retailer that's bigger than Amazon.com (NASDAQ:AMZN) but delivers higher, more reliable margins? Then walk into the Home Depot (NYSE:HD).

The company reported a blowout quarter yesterday, with net income up 32% to 50 cents per common share, well above analyst forecasts. The share price is up 20% from a year ago and is certain to get another bump upwards from these results.

So far this year, HD has doubled the performance of AMZN, rising 11.2%. All this despite Seeking Alpha writers like Alex Shadunsky calling it overvalued and optionMonster calling shareholders nervous. (This is not "dump on SA writers day"; Takeover Analyst wrote last month the stock was headed to $50.)

One good reason for the negativity surrounding HD is that its fate is tied directly to the economy, specifically to housing. Thus, people who are bearish on the economy might discount the current quarter, and look ahead to more headwinds.

But HD is more than a hardware roll-up. It's continuing to experiment in payment technology, having started accepting PayPal in 51 stores. The company has an active ecommerce presence focused on both consumers and contractors, its technology is considered nimble by experts, and its international strategy is also flexible, with company owned stores in Canada, Mexico and China and joint-ventures elsewhere.

Under Francis S. Blake, who joined the company from GE in 2002, the company has been quietly building a respected executive team from companies like eBay (NASDAQ:EBAY) and Target (NYSE:TGT). They're not nearly as flashy as co-founders Sidney Marcus and Arthur Blank, and they're not big earners compared with their peers, but each of its top managers are area specialists, and it's been almost five years since I read of any management drama at the company.

Home Depot has long supported its stock through buybacks so your downside risk is negligible. The company's current price, and its dividend, shows a yield of nearly 2.5% - better than you'll get on a 10-year bond. And if that PE of 20 looks rich to you, note that earnings are up by nearly one-third from their low in 2009, that it didn't report a loss even during the worst of the recession, and that sales are rising back toward their 2007 high.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.