BLDR

Home Depot’s Comps, Operating Income Fall in Q4; Hikes Dividend 10%

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Image Source: Mike Mozart By Brian Nelson, CFA  On February 21, home improvement retailer Home Depot (HD) reported weak fourth quarter 2022 results that showed comparable store sales for the period falling 0.3% and operating income dropping 1.5% from the same period a year ago. Diluted earnings per share advanced 2.8% from last year’s quarter. The company is dealing with a weakened consumer spending environment and difficult comparisons from pandemic-driven demand of a year ago. Home Depot raised its dividend payout 10%, to $2.09 per share, or $8.36 per share on an annualized basis. That translates into a forward estimated dividend yield of ~2.6%. Looking to fiscal 2023, Home Depot’s sales guidance was rather weak. The company expects sales and … Read more

Home Depot Says Customers Remain “Resilient and Engaged”

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  Image: Home Depot’s third-quarter performance wasn’t bad. Inventories expanded, but management reiterated that its core customer remains resilient and engaged. Image Source: Home Depot By Brian Nelson, CFA On November 15, home improvement retailer The Home Depot (HD) reported strong third-quarter results that beat expectations on both the top and bottom line. Revenue advanced 5.6% in the period thanks to comparable sales growth of 4.3% and 4.5% comp expansion in the U.S. Net earnings came in at $4.24 per diluted share, showcasing 8.2% growth over the $3.92 per-share mark from last year. The firm noted that its core customer is still healthy, indicating that it has yet to feel a meaningful impact from what could be a painful decline … Read more

Banks Held Up in 3Q 2022 But Mortgage Market Dynamics and Consumer Health Are Big Economic Concerns

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Image: Homebuyer mortgage payments on new homes have increased more than 50% since last year due to rising interest rates. We think this is a precursor to lower housing prices, which could have implications across the banking and financials sector. Image Source: Redfin By Brian Nelson, CFA We’ve never been huge fans of taking on outsized banking and financials exposure in the simulated newsletter portfolios for a number of reasons. First, the banking industry, much like the insurance industry, is generally muted exposure to the broader economic environment. Though having some exposure to banking and financials may make sense, long-term investors are going to get a better bang for their buck with general operating entities that aren’t necessarily tied to … Read more

Things Are Bad Out There

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“I don’t like this market one bit, but we have to endure. Markets will rise again, but there will be a lot more pain to come in the near term. We think the base case is that we get a very bad recession in 2023. We’ve yet to pull the trigger on put option ideas in the simulated newsletter portfolios, but we expect things to get worse before they get better. For readers seeking ongoing option ideas each month, please consider subscribing to our options commentary here.” – Brian Nelson, CFA By Brian Nelson, CFA Things are bad out there, and there’s probably no better way to say it. On September 28, Bloomberg reported that Apple Inc. (AAPL) is now … Read more

U.S. Housing Market Showing Signs of Weakness

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Image Shown: The US housing market is starting to show signs of weakness. Companies involved in the home building business in the US are starting to feel the heat, with the iShares US Home Construction ETF down ~30% year-to-date as of early September 2022 on a price-only basis. By Callum Turcan The national U.S. housing market has been on fire during the past few years. Sharp increases in U.S. housing prices are now contending with rising mortgage rates, which is prompting the question, are U.S. housing prices heading for a crash? Affordability issues are rampant, with many households now priced out of the market, and signs of weakness are emerging in the U.S. housing market. Background The Federal Reserve is … Read more

ICYMI: Valuentum’s Brian Nelson on the Latest Howard Marks’ Memo: “Something of Value”

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Valuentum’s President of Investment Research Brian Michael Nelson, CFA, explains why there are not really value and growth stocks, why most of the research in quantitative finance is spurious and needs to be redefined on a forward-looking basis, and why enterprise valuation (not the efficient markets hypothesis) should be the organizing principle of finance. Nelson explains his views about valuation, what it means to be a value investor, and investing in the context of Oaktree Capital Howard Marks’ latest memo, “Something of Value,” January 11, 2021. Please don’t forget to give the second edition of the book “Value Trap” a 5-star rating on Amazon here. Thank you for your membership! —– Tickerized for holdings in the IWM. Valuentum members have … Read more

Value Is Not Static and the Qualitative Overlay Is Vital to Our Process

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With prudence and care, the Valuentum Buying Index process and its components are carried out. Our analyst team spends most of its time thinking about the intrinsic value of companies within the context of a discounted cash-flow model and evaluating the risk profile of a company’s revenue model. We have checks and balances, too. First, we use a fair value range in our valuation approach as we embrace the very important concept that value is a range and not a point estimate. A relative value overlay as the second pillar helps to add conviction in the discounted cash-flow process, while a technical and momentum overlay seeks to provide confirmation in all of the valuation work. There’s a lot happening behind the scenes even before a VBI rating is published, but it will always be just one factor to consider. Within any process, of course, we value the human, qualitative overlay, which captures a wealth of experience and common sense. We strive to surface our best ideas for members.

Zillow Continues to Disrupt Real Estate Market

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Image Source: Zillow Group Inc – May 2020 IR Presentation By Callum Turcan Record low interest rates for mortgages in the US, largely a product of the Fed’s monetary stimulus measures (quantitative easing and near-zero interest rates), has gone a long way in stimulating demand for homes. According to the US Census Bureau, the national homeownership rate stood at 67.4% in the second quarter of 2020, up ~260 basis points from the same period the prior year. For reference, the domestic homeownership rate has been steadily climbing higher since 2015-2016 (when homeownership rates were in the low-60s% range) according to data provided by the US Census Bureau. Homeownership rates peaked in 2005-2006 at the high-60s% level before sliding significantly lower … Read more

Housing Market Very Strong But To “Face Two Contradicting Challenges”

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Image Shown: The iShares US Home Construction ETF (ITB) has advanced ~ 24% year-to-date, according to data from YahooFinance. “Housing indicators may be leveling off,” per S&P Corelogic, and the threat of rising interest rates looms (as it has for years), but we like the fundamental strength that we’re seeing from the homebuilders of late, which has translated into strong equity performance. By Brian Nelson, CFA We’ve been bullish on the US housing market recovery since early 2012, and we’ve pointed to several factors as to why–including improved affordability, investment by both individuals and investors, falling unemployment, improved household formation, limited inventory, and more recently, the wealth effect that a rising stock market provides. Things continue to be on the … Read more

Prepared Remarks From Nelson Exclusive Conference Call June 30

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Read President of Investment Research Brian Nelson’s prepared remarks for the yearly roundup conference call, held for Nelson Exclusive members. If you would like to subscribe to the Nelson Exclusive publication, please learn more about the publication here. The Nelson Exclusive publication does not reflect real performance. Performance is hypothetical and does not represent actual trading. Ladies and Gentlemen, Thank you very much for joining us on the first conference call for members of the Nelson Exclusive publication. The first year of the publication has surely been an exciting one for all involved. When I first wrote the introductory letter of the Nelson Exclusive on July 1, 2016, we were well-aware the market had laid down the gauntlet for this publication. … Read more