Value Investors, Pay Attention To Home Depot

Home Depot (HD) has had its share of misfortunes. It started with competition from Lowe’s (LOW) which resulted in market share losses. Then customer service issues pegged back its retail expansion. That was followed by uproar over former CEO Bob Nardelli’s pay package, which was succeeded by the housing market’s woes that caused the home improvement giant to cut its earnings and revenue guidance three times already this year. Finally, there was a bit of disappointment, first over the debate whether Home Depot’s contractor supply chain unit deal would go through, and then the value of the deal when it finally happened.

And amidst all the chaos, Home Depot’s management had a hard time finding a range for the tender offer of its common shares. But things can’t possibly get much worse. This is a company with over 2100 retail stores and $79 billion in revenues last year. And while the housing market shows no immediate signs of recovery, the stock is cheap enough to warrant a buy here.

Consider that Home Depot is still the largest home improvement retailer in the country. Moreover, the stock has taken a beating not dissimilar to that of a homebuilder. Indeed the stock sits at four-year lows at $32, and sports a P/E of around 11, which is historically a level at which the stock has found support.

Meanwhile, the company is on a path to improve in-store expertise and give existing stores a facelift to better compete with Lowe’s. More importantly, the company is in the process of a huge share buy-back, and pays a 2.7% dividend.

Home Depot is turning a corner and I strongly believe that the stock deserves to be bought here. I can’t imagine it remaining at these current levels for too long.