There's No Place Like Home Depot
By Ben Holmes
New Issues Editor
8/23/01 7:29 AM ET
Since January I've spent almost all of my spare time building a house for my family to live in. This is the first one I've done, and I have to tell you the experience has been life-changing.
When I say "building," I mean that I'm actually shooting nails, ripping plywood and staining timbers. And on any day of the week, between the hours of 7:30 a.m. and 10:00 p.m., I can drive down to the local Home Depot (HD:NYSE - news - commentary - research) and bask in the camaraderie of my fellow do-it-yourselfers. For many of us, this orange-colored temple of tools has become an important stop in our constant quest for better lives and increased self-sufficiency.
I've long been a believer in this stock, and my children have owned HD shares since they were old enough to have first names. There are lots of reasons to like Home Depot, but I've become much more aware of them since I began building my own house.
But before I go there, we need to tackle one stubborn detractor and his theory that HD has achieved saturation in its market. My colleague Herb Greenberg asserts that because Home Depot is now moving into smaller, less-populated markets, it has already gotten to all of the high-volume, high-potential spots. I say that's wrong: There are still millions of homes to be built in the U.S., and these seemingly unpopulated, unbuilt areas are simply land waiting to be developed. Remember, people, like gases, tend to expand to fill an empty space. That said, there is an even larger, more immediate opportunity for companies like HD.
One thing I've recently come to appreciate is the tremendous need for Americans to upgrade and improve their homes. The housing boom that followed World War II was probably the most expansive in our history. Because of this, there are at present many tens of millions of occupied homes in the U.S. that are more than 50 years old. The building methods and materials used during the 1940s and 1950s were solid for their time, but by today's standards are subpar. Building components of this period -- everything from insulation and windows to heating and cooling systems, plumbing and electricity -- are all composed of materials with limited life spans. Therein lies what many view as a huge opportunity for the home-improvement industries now and far into the future.
For example, consider the efficiency of these components in relation to the recent rise in energy costs. Most of the U.S. exists in geographic zones that offer weather and climates outside the normal range of human comfort. Both hot and cold weather present challenges to us that can be corrected, at least in part, by upgrades or improvements to our homes. Again, high-efficiency windows and doors, insulation, and heating and cooling systems are all available at a Home Depot store near you.
Regardless of what you think of HD shares at this moment in time, it's difficult for anyone to argue against the company's brand strength, its sheer market presence and its consistent model of broad selection and fantastic customer service. At least for now, HD holds the advantage in these areas over competitors like Lowe's (LOW:NYSE - news - commentary - research), which reported strong second-quarter results earlier this week.
These factors and the endless ocean of U.S. homes to be built and/or in need of repair or upgrade will continue to draw consumers to the big orange sign.
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