Home,Depot, Lowes and a company on my radar

Couple events affecting two companies I reccommended. Home Depot(HD) announcing a $3 billion stock buyback program. I take buybacks as management's confidence in the future of the company.Why? Because a management wouldn't buy back shares at a high price just for sake of buying back shares. Management buy back shares only when the stock price is a bargain.


On the other hand, Lowes (LOW)upgraded by Bear Stearns. I do not care about what analysts think but I thought I would throw it out there for those who might.

A couple of stocks im looking at in which you might want to take a look. Wal-Mart and Walgreen's are on my radar. First of all, I already own Wal-Mart (WMT) and has fallen to a level in which it's attractive again. Check out my post on Wal-Mart here.

Walgreen on the other hand has been beaten down for a while. The cause? Wal-Mart offering $4 prescription drugs. All the indicators that i look for in a company are there (ROA,ROE and FCF).The company also has a nice history of raising dividends. So what's stopping me? The P/E is 25. Historically the current P/E is low and does make it attractive. But I like company's trading at or below the markets P/E which if I recall correctly is 21. Wall Street is currently sold on the idea that Wal-Mart's program is going to crush Walgreen. History tells us that noone competes with Wal-Mart. Hold you horse cowboy. Walgreen's customers are very happy with Walgreen. Some customers have been going to Walgreen's for years and I doubt just because Wal-Mart is undercutting the competetion they will switch. Also, when people go for their prescription drugs they do not go for the lowest price all the time. People usually go to the nearest drug store for the sake of convenience. In addittion, the Walgreen family still owns a majority of the shares.

Again Walgreen is only a company im looking at and will be on my watch list for the next couple of weeks while I do a bit of microanalysis.

Just an update

Just an update on Home Depot. On Wednesday 12.13.06 it announced an acquisition of Home Way. Although not the biggest home improvement retailer in China it does accelerate Home Depot's position in the Chinese market. This falls in line with the thesis I made for the company. When I reccomemded it earlier this month. Although the deal was "small" , valued at 100 million, it's nice to see the company is expanding in front of our eyes, it makes me look good :).

You can read more about the acquisition here

Pfizer (PFE)

For those of you who do not know Pfizer, it is a HUGE company. On Monday December 4, Pfizer announced the cancellation of a very “promising” drug and a sell off happened. The volume for the day was 300 million! Think about that for a moment, it is like every person in America waking up and selling/buying a share of Pfizer. The stock dropped 10% that day whipping out about 20 billion of market cap. I have decided to put this puppy in the oversold/overreaction category. The company has an 18.5% Return on Equity ttm and about 25% 5 yrs average. Pfizer has a Return on Assets of 11%& ttm and about 11% for the past 5 years. Pfizer’s net profit margin is consistently in the 20%+. It currently trades at a P/E of 14, below the S&P’s P/E of 20.8 and its 5 yr average of about 21.Pfizer is also currently trading at 2.6 times book value (ttm), again well below its 5 year average. It currently has 15.8 billion in free cash flow (ttm) or $10/share. Think about that for a minute15.8 billion is the size of the GDP of some countries. Lipitor, it’s most popular and important drug patent doesn’t expire until 2010 and 2011. What about product pipeline? Ahhh that argument is as old as the hills. In addition, with 15.8 billion in free cash flow you can do many things to add some products. For example, it can acquire another company or spend it on research and development. This brings me to my next point. Pfizer’s R&D is consistently at 15%. This is critical for pharmaceuticals as you always want to have new products being developed. In my opinion, PFE is worth at least $36.

"be greedy when others are fearful and be fearful when others are greedy"

-Warren Buffett

Disclaimer: I do not own shares in Pfizer (PFE)

Don't Even Bother

I will admitt that I am not the type of person to wake up late in the day, I am an early bird. One thing I hate about being an early bird is that there's not much to watch early in the morning.But one thing is certain, there is an abundance of informercials promising richest in the stock market. Unfortunately, the majority of these prorams offer quick riches in the stock market and charge thousands of dollars for their products. The informercial will include testimonials of "customers" or paid actors, who didn't know anything about the stock market all of sudden make "x" thousands of dollars in a week. Investing is not that easy. Investing in Wall Street takes time and patience.
The likes of Warren Buffett,Martin Whitman,and Bill Miller to name a few, all think for the long term before establishing a position. The time frame for their positions usually take years and in some cases forever.
"Our favourite holding period is forever."
-Warren Buffett
Patience is important because it might take a while before Wall Street finds what you pocess. For example, maybe you found a stock worth $40 but selling $20, noone knows how long it will take before the value of the stock is realized.
" When stocks are attractive, you buy them. Sure, they can go lower. I've bought stocks at $12 that went to $2, but then they later went to $30. You just don't know when you can find the bottom"

-Peter Lynch

Home Depot (HD)

Heres a company I like and looks like a bargain as of 11.26.06

Company Description

The Home Depot, Inc. operates as a home improvement retailer in the United States, Canada, and Mexico. The company operates The Home Depot Stores that offer an assortment of merchandise and services, including building materials, lumber and millwork, plumbing, electrical and kitchen, hardware and seasonal, paint, flooring and wall covering products, generators, and furnace and central air systems, as well as provides installation services, such as carpeting, flooring, cabinets, countertops, and water heaters. It serves Do-It-Yourself (DIY) customers; Do-It-For-Me (DIFM) customers; and professional customers, including remodelers, general contractors, repairmen, and tradesmen. The Home Depot also operates EXPO Design Center stores, which provides home decorating, remodeling, and installation services for middle-to upper-income DIFM customers. It offers interior design products for kitchens, baths, appliances, and flooring, as well as products for lighting, decorating, and storage and organization projects. In addition, the company provides credit purchase programs through third-party credit providers to professional, DIY, and DIFM customers. As of September 18, 2006, the company operated approximately 2,000 stores. It also offers products through its Web site, www.homedepot.com. The company operates AmerenUE&undefined;s Labadie power plant for concrete packaging through the partnership with AmerenUE and Charah, Inc. The Home Depot was founded by Bernie Marcus and Arthur Blank in 1978. The company is based in Atlanta, Georgia

Thoughts

The stock currently trades at $37 with a P/E of 12. Its historical P/E range is between a high of 57 in 1999 to today&undefined;s low of 12.For the past couple of years it has ranged between a more moderate 12-18. P/E wise it definately looks like a bargain.

P/BV- The stock traded at 10x book value in 2000 and currently trades at roughly 3x book value making it a bargain in P/BV

What I love about the company is its financial position and industry position. Currently it has more than 3 billion of free cash flow. I like companies with free cash flow because they are able to capitalize on oppurturnities that more cash strapped companies can&undefined;t. the biggest oppurturnity out there is the China boom in which Home Depot is well positioned to pounce on. Home Depot has been able to maintain good ROE (roughly 20%)and ROA (13%). The company is still gorwing at around 10% and should be able to continue at that pace if it expands into China and other emergin markets. The stock has been beaten up due to mangements use of optons and slow down in housing. The slow down in housing has affected in company connected to housing in which Home Depot is clearly connected with. As housing rebounds so will Home Depot so a little patience is requiered if you do plan to have a position with HD. I like to play for 3-infinity years. As long as I do not see any drastic changes in the fundamentals I might hold HD for a long time.

Disclaimer: I own HD shares

Wal-Mart (WMT)

The Business

Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. It operates in two segments, Wal-Mart Stores and SAM’S CLUB. The Wal-Mart Stores segment comprises supercenters, discount stores, and neighborhood markets, as well as an online retail format, Walmart.com. It offers apparel for women, girls, men, boys, and infants; domestics, fabrics, and notions; stationery and books; shoes; housewares; hardware; electronics; home furnishings; small appliances; automotive accessories; horticulture and accessories; sporting goods; toys; pet food and accessories; cameras and supplies; health and beauty aids; pharmaceuticals; jewelry; and optical, as well as photo processing services. The neighborhood markets include dry grocery, meat, produce, deli, bakery, dairy, frozen foods, pharmaceuticals, photo processing, health and beauty aids, household chemicals, paper goods, general merchandise, and pet supplies departments. The SAM’S CLUB segment comprises the warehouse membership clubs in the United States and samsclub.com. It offers hardgoods, softgoods, software, electronics, jewelry, sporting goods, toys, tires, stationery and books, grocery items, and selected private labels. As of January 31, 2006, the company operated 1,209 discount stores, 1,980 supercenters, 567 SAM’S clubs, and 100 neighborhood markets in the United States and internationally. It operated 11 units in Argentina, 295 in Brazil, 278 in Canada, 88 in Germany, 398 in Japan, 774 in Mexico, 54 in Puerto Rico, 16 in South Korea, and 315 in the United Kingdom, as well as 56 stores through joint ventures in China, as of the above date. Wal-Mart Stores was founded in 1945 and is based in Bentonville, Arkansas.

Wal-Mart hit a low of $42 back in mid July when the fear of inflation was in the mind of Wall Street and had a brief recovery to $52 before coming back down to its current price of $46 creating another buying opportunity. It currently trades at $46 with a P/E of 17. This P/E is well below its 5 yr average of 23 and the markets P/E of 20. When measured by price-to-book value, it is currently at 3.5 times book value. Its trailing twelve months free cash flow of 3.5 billion will allow it to survive tough times and expand into emerging markets. It’s current growth rate will be kept as the company expands domestically and into emerging markets. Wal-Mart also has the ability to allow stores to sell groceries. In addition, managements hopes to expands into the pharmacy business by offering certain generic drugs for $4. Don’t worry the Walton family still control’s most of the companies inside stock. The stock IMO the stock is worth $65.

Disclaimer: I own shares of Wal-Mart

Lowe's (Low)

The Business

Lowe’s Companies, Inc. operates as a home improvement retailer in the United States and Canada. It offers a line of products and services for home decorating, maintenance, repair, remodeling, and property maintenance. The company’s home improvement store stocks a selection of national brand name merchandise of approximately 40,000 items. It serves homeowners, including retail do-it-yourself customers and do-it-for-me customers; renters; and commercial business customers, such as repair and remodeling contractors, electricians, landscapers, painters, plumbers, and commercial and residential property maintenance professionals. Lowe’s Companies also owns and operates flatbed distribution centers to distribute merchandise that requires special handling due to size or type of packaging such as lumber, boards, panel products, irrigation pipe, vinyl sidings, ladders, and building materials. In addition, it provides installation services. The company markets its products through television, radio, newspaper, magazine, direct mail, sponsorships, Internet, and in store programs, as well as through special order sales system. As of September 14, 2006, the company operated 1,275 stores in 49 states, as well as owned and operated approximately 10 flatbed distributions centers. Lowe’s Companies was founded in 1946 and is based in Mooresville, North Carolina.

Home Depot’s bitter rival and what many consider the better of the two. Lowe’s currently trades at a P/E of 14 with a 5 yr average of 23 it definitely on the bargain end. When measured by price-to-book value it trades at 3.1 times book value, well below its historical average. . Its trailing twelve months free cash flow of 650 million is more than enough to get it through tough times. Not only does it have an abundance of cash, it has been growing that free cash flow and reinvesting it. The result of the reinvesting and expansion has resulted with a ROE of 22% and a ROA of 12% for the past 5 years. Its strong financial situation will also help Lowe’s expand into China and other emerging markets like its counterpart Home Depot. The market’s fear of a depressing market slowdown has brought the stock down creating a buying opportunity. The stock IMO is worth around $45

Disclaimer: I own this stock