HD's Valuation Is Tempting

Home Depot's management, similar to most retail managements, is focusing on controlling expenses, inventories, capex (now half of last year's rate) and the variables under its control, as the housing and macroeconomic environment plays itself out.

Earnings and revenue estimates for calendar 2009 will probably continue to be revised lower, however, after this morning's report. Housing led us into this economic malaise, and housing will have to lead us out, and once home prices start to stabilize and even improve, the do-it-yourself, home improvement retailers like Home Depot will surely benefit. The seemingly cheap valuation on the stock (0.5 times sales, less than 2 times book value, 7 times cash flow, 4.5% current dividend yield, etc.) is tempered by continued deterioration in the housing environment and now consumer spending patterns.

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Know What You Own: Home Depot and operates in the home improvement store industry, and some of the other stocks in its field include Lowe's (LOW - commentary - Cramer's Take), Lumber Liquidators (LL - commentary - Cramer's Take) and Builders FirstSource (BLDR - commentary - Cramer's Take). The home improvement store industry is somewhat dependent on the housing turnaround, and some of the stocks in the residential construction industry include Toll Brothers (TOL - commentary - Cramer's Take), Pulte Homes (PHM - commentary - Cramer's Take) and NVR Incorporated (NVR - commentary - Cramer's Take). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

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At the time of publication, Gilmartin had no positions in the stocks mentioned, although positions may change at any time.

Brian Gilmartin, CFA, founded Trinity Asset Management (TAM) in 1995, where he is currently a portfolio manager. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Gilmartin appreciates your feedback; click here to send him an email.