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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Mark Marcellus who wrote (16062)	1/3/2003 7:28:25 PM
From: Larry S.	Read Replies (2) \| Respond to of 78571

HD is going to lose institutional support. That means there will be large sellers and continued selling pressure, imo. HD is probably attractive in high teens or low 20s, but i don't see any impetus for the stock to make any significant moves. I think we are seeing an overbuilding of these stores, both HD and LOW, which are cannabalizing existing business. the real losers will be the small, independent hardward and lumber companies. larry

To: Mark Marcellus who wrote (16062)	1/4/2003 12:10:20 AM
From: Don Earl	Read Replies (6) \| Respond to of 78571

Mark, The last time I was running numbers on HD my best estimate of off balance sheet debt was a minimum of $4 billion. Their filings are a joke when it comes to disclosure, or I would give you better numbers. Accounts payable have increased by $2 billion in the 9 months ended November 3, and a 10% drop in same store sales is NOT what you want to see at peak inventory levels, especially when the inventory still has to be paid for. Home Depot made a lot of really dumb moves this year that dumped a ton of their business right in Lowe's lap. You don't win that much lost business back overnight, if ever. They took deep cutbacks in inventory and staff right at the peak of the building season and the delayed reaction you can expect to see from those kind of mistakes are starting to show up in their results. I think it's also worth mentioning that HD is a relatively recent addition to the Dow. Unlike the majority of the index, which has been around long enough to weather some very tough business cycles, Home Depot has only been measured against a backdrop of near perfect conditions in their market. What happens if same store sales drop another 10% due to a slow down in construction spending or higher interest rates? What happens if they have to shut down under performing locations and those off balance sheet leases have to be settled? What happens if the inventory sits on the shelf long enough that it has to be paid for? My guess is Home Depot could easily follow in K-Mart's footsteps within 2 years. While we're at it, that $5 billion plus in accounts payable leaves a lot of other highly leveraged large caps with their necks sticking way out there where they don't belong. "IF" I absolutely had to own any Dow stocks right now based on price, I'd definitely put off a trip to the hardware store until at least next Summer, and have a Big Mac with Mickey Mouse instead, probably on an airplane.