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Home Depot Tailwinds on Two Fronts
Larry Kudlow is a breath of fresh air these days on CNBC (the gloom and doom network). I loved his segment with Gwendy Bounds of the Wall Street Journal about a surge in snow-blower sales the other day. Gwendy thinks that the trend will continue into Spring with the "do-it-yourself" spirit transferring to people who now find themselves pinching pennies cutting their own grass, etc. Alot of these people will buy lawn equipment at places like Home Depot because they don't currently own a mower or a wheed-wacker, etc. They don't own this type of equipment because they are used to just hiring a service to do it for them. Gwendy's in-depth piece on this topic was in the Wall Street Journal on Thursday. Reasons to be Bullish on Home Depot: Two Big Fundamental Reasons 1. With personal incomes dropping, more people will do things themselves that they used to hire others to do such as mowing the grass and snow-blowing. They will justify buying this new equipment at places like Home Depot. 2. 2.3 Million homeowners faced foreclosure proceedings in 2008. 860,000 of these have already been repossessed. All these recently repossessed homes will eventually get bought by disgruntled former stock market investors turned real estate speculators who will spend $5,000 - $10,000 on things like paint, carpet, cabinets, door-knobs, light fixtures (I could go on...) before they list them as rental property. Rental property will be in greater demand for some time because of the disappearance of the sub-prime mortgage option. Technical Reasons * There are over 6,000 option call contracts with open interest at both the $30 and $32.50 strikes for May 2009. With HD around $22 today, the holders of these contracts see the potential for a 50% pop between now and then. * With the exception of a few days last week, HD has been above it's 50 day moving average for about 6 weeks. * The arbitrage between HD and the rest of the Dow is a net positive 20% over the past 3 months. HD is up 15% while the overall Dow is down 7%. http://smarteasytrades.blogspot.com/2009/01/home-depot-tailwinds -on-two-fronts.html |
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