Just a hunch

Home Depot's CEO just resigned abruptly. It's up about 3% so far today on the news. Nardelli gets a $120 million severance package in spite of the fact that the stock price is lower than when he started six years ago (in fairness, a lot of that has to do with the high P/Es of the dot-com bust- Wal-Mart's stock has had the same problem).

I encourage you to go with your hunches! $1000 on HD would, in the worst case, lose you $100-200. In the best case you'd make $100-200, build your confidence up to do more research and invest more money, and in a few years you'd be investing $10,000 and your 10% profit would be $1000.

As an amateur small-time investor, I have often kicked myself for having an educated opinion on a stock and not acting on it. At times I have acted on my gut and nine times out of ten I was right. Wins include Lockheed Martin right before it won the Joint Strike Fighter contract, Krispy Kreme Donuts shortly after its IPO, Google at $287 back in Sept. '05, and Microsoft after an unjustified plunge this past spring. I have lost on SPDR, lost and won on Yahoo! because of timing (see post above, and lost on a few other companies that I knew absolutely nothing about (I rode Lucent Technologies all the way from $56 a share to $2.00, and I still don't know that Lucent Technologies does).

I have to disagree, because I don't think the percentage of total homes for sale is not enough to cause a bump in Home Depot sales. It is very local, of course, but how many places in your neighborhood/town are for sale? In mine it's 2-5%. In the past it has been higher but I'd venture that at least a third of homes for sale in 2005 to mid 2006 were people looking to cash in and either get a smaller place or move-up to a bigger place.

It also depends how much of Americans' wealth is in home equity. With double-digit home price appreciation over the past several years, many people have relied on a Home Equity Line of Credit (HELOCs) to purchase nicer cars, eat organic food, and fund home improvements.

There are a ton of factors, and you may end up being right, but my hunch says HD and LOW are bad ideas right now.

If you buy into the bearish outlook--that the stock market's bull run of fall and early winter has no justification--you might consider consumer staples like PG, JNJ, and stores that sell them like TGT and WMT. If home equity dries up and the middle class has to start pinching pennies, they will end up at Wal-Mart buying Sam's Choice flavored water instead of the fancy stuff down at Whole Foods.

But trust what you know, and put your money where your hunches are! You can also buy a mutual fund that holds Home Depot. The "major holders" tab on Yahoo! Finance will show you which mutual funds have the biggest chunk.

90% of mine and my wife's IRAs are in an Oakmark mutual fund. Oakmark's original Oakmark Fund (OAKMX) has Home Depot as 1.89% of its holdings. Good news for your hunch: Oakmark only buys stocks they consider to be trading at a "significant discount to their intrinsic worth."

Unfortunately, it is not an option in the poll, but I prefer Lowe's over Home Depot for several reasons. First, Lowe's is always better lit than Home Depot, so it feels more open. While the illumination inside of Home Depot is sufficient to function in, it always makes me feel like I'm walking into a cave. Second, Lowe's has made a concerted effort to plan out where everything inside of each store is placed, so you can always find what you need where you expect to find it. Third, Lowe's seems to have better customer service. Every time I've needed some help in Home Depot, it has always seemed to take at least twice as long to find anyone, first of all, much less find someone who can assist me in Home Depot than in Lowe's. Now this may just be a factor of the particular stores I've been using, though.