HD gets my Neutral rating. In short, Home Depot is a good company that is not a good stock. It is a good company because it has strong, high-quality earnings (the company’s ROIC, at 12%, ranks in the 2nd quintile). It is not a good stock because the valuation is rather expensive. For example, to justify the price ($51.79 as of close on 4/30/12), the company must grow NOPAT at 7% compounded annually for 8 years. HD’s valuation is not as high as many stocks that I tell investors to avoid. It is not as low as the stocks I recommend investors buy, e.g. MSFT.
Here is my free report on HD.
My definition of good risk/reward for a fund is the same as it is for a stock, and my stock research is the foundation of my fund research. Ergo, my fund ratings are predictive just as my stock ratings are predictive.
My regular readers know that I am neutral on Consumer Discretionary funds as it ranked fifth out of all ten sectors as detailed in our sector roadmap. They also know that just because a sector has lots of good stocks it may not have lots of good ETFs or mutual funds. None of the ETFs or funds we cover, that allocate more than 5% to HD, get an Attractive-or-better rating. So, we do not recommend HD or any of the ETFs or funds that allocate more than 5% to it. Below is a sample list of funds that allocate the most to HD.
- Fidelity Select Portfolios: Construction & Housing Portfolio (PFSHOX) – 19% allocation: Dangerous Rating
- Direxion Daily Retail Bull 3x Shares (RETL) – 12% allocation: Neutral Rating
- Market Vectors Retail ETF (RTH) – 9% allocation: Neutral Rating
- Fidelity Select Portfolios: Retailing Portfolio (FSRPX) – 7% allocation: Neutral Rating
- ICON Funds: ICON Consumer Discretionary Fund (ICCCX, ICCAX, ICCEX) – 6% allocation: Neutral Rating, except ICCAX gets Dangerous Rating b/c of higher costs
- Professionally Managed Portfolios: Hodges Blue Chip 25 Fund (HDPBX) – 6% allocation: Neutral rating
My ratings and free reports (updated daily) on 7400+ funds are available from my fund screener.
Disclosure: I own MSFT. I receive no compensation to write about any specific stock, sector or theme.