Home Depot
HOME DEPOT: BIG ORANGE OR BIG LEMON?
Last January, I learned the hardest lesson you could about investing, that what goes up must inevitably come down. While tech stocks were soaring, my good old "blue chip" Home Depot began a descent that would cut its price from $80 a share to $40 in two months. After three years of upward movement, resulting in splits in each year, I was not prepared for the fall out that occurred. Now, Bernard Marcus, the CEO, stepped aside to retire and Bob Nardelli, a product of General Electric has been hired to lead "Big Orange" as I am going to call Home Depot to the next level. However, since Nardelli's announcement, the stock has yet to break out of its $43-48 range. For a long time Home Depot stockholder, used to a form of upward movement in the stock price, things do not look so rosy.
What is so hard to understand is why Home Depot began its slide as the stock market was rushing towards all time highs. Those heady days of Spring 2000, where anything with a dot.com would lead to certain lofty stock prices, Big Orange continued to weaken, going from $79 to $60 to $50, and hovering between $48 and $53 a share. Big Orange was not participating in the Bull Market. I heard stories of my friends doubling their money as they threw money at anything with a "tech" leaning. Biotechnology, Internet, Telecommunications, whatever it was, these stocks were plowing ahead and I sat laggard. That is fine because merely a year ago, HD, Big Orange was flat through spring and began a run in summer. From that summer run, Big Orange pushed through $100 and split three-for-two. I was feeling confident that my baby would break out of the horrible slump. However, from the $60, we all got caught in the crash in March and April. In one day I lost all my profits from the year before, and the. Big Orange turned, like the rest of the market, into Big Lemon.
Then came the earnings warnings. HD warned for the first time ever that their profits were going to fall short. This was on the heels of them missing "whisper numbers" from their quarter before (the stock was punished because the company did not exceed expectations to the levels that some idiots thought the company could fudge their books to reach). Wall Street was out of control, and companies that continually returned quality numbers were being punished. Analysts looked for those crazy profits in Internet companies. Oh wait, they did not turn profits but had their stocks talked into the stratosphere. Not only were individual investors being fleeced as the stocks were pushed so high before the crash in March and April, HD investors were missing out of the opportunity to have their stock padded against the crash. We hit hard.
Now I sit aside threatening to sell my mainstay of my portfolio for many years. What is wrong with HD? The company is sound. It makes money. People know those orange home improvement stores. They are dominant all over the continent. Sure Lowe's offers some form of competition, but nothing substantial enough to justify this fall in stock price. The company then warns that they will not have the profits expected by analysts. The stock is further punished. As a stockholder, I understand what is happening. The market no longer likes Big Orange. HD is far too cyclical for those pundits now controlling the large money flows. Stockholders like me are left with a very pressing question: will Bob Nardelli be able to bring Big Orange into another strong string of good results?
At least one lesson was taught to me during this whole escapade. There is an old saying on Wall Street that runs something like: "bears and bulls make money. Pigs never do." I think we all got caught up in the euphoria, though my stock never multiplied into hundreds of dollars overnight, and we all forgot how Wall Street worked. Luckily, I have been taught to hold your stock through thick and thin. Any market watcher will tell you that whatever you do, the market will always go up. However, is there still growth in a company like Home Depot? Has it reached its final optimal price, and more important, will investors get their returns any more? As an investor in this stock, I must say, it has been one hell of a ride thus far, and there is much more to watch for in the future. Mr. Nardelli, from all the small shareholders such as myself (those with under 1000 total shares), we are very glad to have you as our president, but just do us one favor, do something substantial to sensationalize whatever initiatives you are going to bring in. We need a pop in this stock more than anything else! And for all those other investors who lost in the Internet craze, I hope you learned your lessons not to invest in companies that have not turned a profit. If this site had been up before this point, I would certainly have told you not to touch those traps.
