Housing cycle still on the upward swing
Home Depot's CEO says home improvement sales are directly tied to the value of homes.
Maybe it's a multiyear move tied not to the Fed but to the need for more homes.
That, in essence, is what Home Depot (HD) CEO Frank Blake said Wednesday night about why he doesn't think we are at the peak or even near it when it comes to both his company and housing-related entities in general.
Home Depot has put more thought into what drives sales than just about any company I have ever seen. Blake and Carol Tome, the amazingly good CFO, have done regression analyses that correlate every aspect of their revenues to gross domestic product, to percentage of growth domestic product spent on homes and to the level of indebtedness versus the value of a house. The most important lead indicator? The value of a home. If it goes up, then you go to Home Depot to invest in that home.
In this analysis, a home is either a failing or a succeeding business, and if it is succeeding, you want to add to it, just as any rational businessperson would do.
When I talked with Blake, I was prepared to go over the usual grounds about what happens when the Fed tapers, blah blah blah. But Blake said the determinant isn't interest rates, it's the innate demographic pent-up demand from household creation. We are simply not producing anywhere near the level of homes we need to be able to replace what we are losing and sate the demand for people who are living with their parents.
That, above all, is the reason he is confident that it's still early in the cycle.
I immediately asked that if that's the case, why doesn't he add stores in the United States, which is a growth prop that so many analysts secretly wish HD would start doing (it added only one this year,).
Nope, Blake said, it's what's sold in the aisles. A combination of innovative products -- like the Cree bulb that last 22 years that he says "you have to include in your will" -- a better supply chain that allows very quick delivery, including a $300 million decision to offer same-day delivery in some cities, and better use of the aisle space will get Home Depot exactly where shareholders want it to be.
I know we are in some sort of a funk right now, but I also believe that while we aren't, perhaps, in as early an inning as Blake thinks we are in this cycle, I do think this top-of-the-ninth feel is just way off base.
If it comes in, you buy it.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.
Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio and uncover the stocks Cramer thinks could be winners.
More from TheStreet.com
HD sells plenty of stuff that really doesn't add value to your home - lawn mowers, appliances, Christmas decorations, garden hoses, power tools, etc... are all great things to have and you might even need them, but when you purchase them, you really aren't "investing" in your home.
People are living with their parents because either they don't have a job or are working in a job where they don't make enough money to rent their own place, let alone buy a house.
People go to Home Depot for DIY repairs and improvements because they can't afford to trade up, which was the norm before the current recession. Banks aren't lending to your typical HD customer
Housing data, like stock market data is being manipulated. Let's see how things are this spring, then maybe we can make a judgement.
Next Time Up makes a good point - that is, the possibility of lower incomes and spending power in the health care industry (along with so many other industries). You just don't think of doctors as taking pay cuts.
The trickle down of the ACA is going to take many years to reveal itself. I don't have good feelings about it.
Owning a used home is a young man's game. I'm tired of fixing things.
At least he is brown nosing a chick today.
( JMHO and has nothing to do with upsetting Rome of course.) ..... Oh and Amazon is Great!
I've put the snow plow on my 4x4....
That box You and Fatty live in,....Better be reinforced..
CL; Every time I hit you with facts you vanish.Don`t act like you`re objective.You`re the female
Rush Limbough.Whatever Obama says you automatically go the other way.Rush makes millions
because right wing saps listen to his lies.
On the other hand, if you knew where Boeing was going to build the 777X, you'd buy everything in that area that you could get your hands on.
Chinese man complaining to Obama.... "Show me bacon"
And let's not forget about **** Cheney sticking to his guns by still calling Nelson Mandela a terrorist. Cheney was last heard ranting and raving: "LONG LIVE APARTHEID", "KILL ALL THEM DARKIES" and "KILL ALL THOSE GAYS AND LESBIANS..... ummm..... except for my daughter".
Forgive all them Repukelican lunatics Lord, for they all suffer from "Affuenza".
DIE REPUKELICANS, DIE!
Barry, Just keep listening to Fox.They love to say SS and Va benefits are welfare.The Repubs
wonder why they can`t win the WH.Just keep talking that crap and they`ll never win the WH.
I have a power lunch to attend.Time for the Repubs to namecall me now.Look where that`s
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Despite its size, the IPO will create just two new members of the 10-figure club from its executive ranks. A few others could net hundreds of millions.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.