Maven: Home Depot's Hometown Fans

The faltering giant's earnings get an overly favorable review in its local paper. Plus, Wal-Mart.
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The Business Press Maven had just finished pontificating

last week about how investors should read the hometown newspapers of a company that just reported earnings when for our amusement, the cat dragged in a perfect example.

My absolutely firm premise is that in this cluttered business media environment, the hometown newspaper is still often the closest to the company, which can mean one of two things.

You can get some of the best coverage around, from a reporter who knew the company when it was in diapers and who has good sources.

Or you can get some of the worst coverage around, from a reporter who knew the company when it was in diapers and who is too close to his sources.

Got that? You get unrivaled insight into the company.

Or you get unrivaled insight into the most overly bullish case imaginable, the one that belies belief and serves as a road map to investors of what not to think.

Take

Home Depot

(HD) - Get Report

.

The company is, in one word, totally screwed.

The Wall Street Journal

, writing about Home Depot's

disappointing earnings

this morning, reflected that well, working the words "dismal" and "gloomy" into the lead, in addition to the phrase "rapid slowdown."

That about captures it.

Home Depot's profits dropped and it lowered forecasts.

The housing slowdown, coupled with issues of customer service, management defections, merchandising and more are conspiring against it.

But it's not a conspiracy of circumstance, as the

Journal

makes clear, mentioning the "self-inflicted" nature of many of Home Depot's troubles. All in all, an accurate report.

That's when The Business Press Maven skedaddled over to

The Atlanta-Journal Constitution

site to see what insight the hometown crew could offer in its

report

on the earnings.

The completely nonjudgmental lead gave off a slight whiff that the company hadn't done well: "Atlanta-based Home Depot said third-quarter profit was $1.49 billion, or 73 cents per share. That compares with $1.54 billion, or 72 cents a share, in the same period a year earlier."

The paper gets on to mentioning that this was below Wall Street estimates, but how far does it go in analyzing Home Depot's deep troubles?

The last sentence was it: "Home Depot and rival

Lowe's

both are battling a slowdown in the housing market that is spilling over to remodeling purchases."

A receding tide sinks all ships.

How about customer service? Management defections? The desperate air of the move to sell flat-screen TVs? None of these essential elements make it into the article.

Investors, please realize that Home Depot is faced with more than a simple cyclical challenge.

Speaking of trials, the Business Press Maven is faced with a challenge when he reads a lead that can't be further from the truth from an article that he completely agrees with because it's what he has been saying this whole election cycle.

First, the nonsense.

The New Yorker

, in looking at the

possible economic implications

of last week's election, started with the shaky premise that all of Wall Street feared the Democrats.

Said

The New Yorker

, in a fit of misinformation:

Wall Street pundits forecast a future of tax hikes and new regulations, and suggested that if Democrats took both the House and the Senate there would be a "major stock selloff." But the day after the elections stock prices went up.

How this ever made it into print is a mystery to me. Uh, the stock market has been strong for the past few months. It went up on the day after election just as it had gone up many of the previous 90 days.

And Wall Street pundits never speak as a whole about anything, much less this. Many rightly think the best government for the stock market is a split one, just like this gridlocked little gem taking form in Washington.

From there,

The New Yorker

has the good sense (you boys and girls been reading me by any chance? Stone-cold busted!) to pick up on the monstrously obvious point I've been making: There is no historic proof that the stock market prefers either party, or that, in a multi-trillion-dollar economy, either party has more than marginal impact.

Wrongheaded coverage of

Wal-Mart's

(WMT) - Get Report

earnings has had more than a marginal impact in creating this migraine I'm currently suffering from.

From

The Washington Post

, which led its

story

with the overexcited "Wal-Mart Stores said yesterday that third-quarter profit rose 11.5%, a positive omen for the holiday season following lackluster monthly sales" to

CNBC

, which

called

the earnings "impressive," the better part of the business media is getting duped by what happens when a once-great operation still has the skills to control inventory.

Wal-Mart's same-store sales, the key measure to long-term success, were still anemic.

And though recently announced price cuts were widely declared a success by the business media, it is unclear how many were in place during this quarter.

Moreover, going forward, Wal-Mart finds itself playing the role of a circus contortionist.

It's aiming to be more fashion-forward in order to compete with

Target

(TGT) - Get Report

, which has risen to the level of arch-rival. (Find me one headline mention of Wal-Mart that doesn't also mention Target.)

But as it tries to appeal to a wealthier, more fashion-conscious customer (something it has showed no success in doing), Wal-Mart also is embarking on this huge price-cutting binge.

By the time all's said and done, Wal-Mart and Home Depot may be paying you to take home flat-screen TVs.

I'd avoid both stocks with a vengeance.

A journalist with a background on Wall Street, Marek Fuchs has written the County Lines column for The New York Times for the past five years. He also contributes regular breaking news and feature stories to many of the paper's other sections, including Metro, National and Sports. Fuchs was the editor-in-chief of Fertilemind.net, a financial Web site twice named "Best of the Web" by Forbes Magazine. He was also a stockbroker with Shearson Lehman Brothers in Manhattan and a money manager. He is currently writing a chapter for a book coming out in early 2007 on a really embarrassing subject. He lives in a loud house with three children.