HD: Keep a Trade a Trade

There’s not a boatload of companies anymore in retail that have the kind of setup into the quarter that we see in HD, which can’t be ignored on top of a bullish formation. There’s a trade to be had – but be careful about timing, and ‘Keep a Trade a Trade!’


HD is a name that Keith’s models flag as looking solid on his short-term TRADE duration. Specific levels are as follows…


TRADE = 28.36

TREND = 27.49

TAIL = $25.19


Looking at the financials, let’s keep this simple. HD is going up against a -17% comp, and an 800bp erosion in operating margin last year. Underlying trends have been improving on the margin (looking at 2 and 3-year numbers), and yet the consensus is modeling a flat quarter. Upside is likely.


The SIGMA chart below (as always, call if you need a hand interpreting -- someday I'll figure out a way to simplify it) also shows the disconnect that we saw in 4Q of last year with working capital as it relates to sales. Simply put, the delta between sales and inventories was the worst we saw last year since well before the recession began. Combine that with one of the worst margin quarters in HD history, and it led to the mother of all squeezes on cash flow. We don’t need to bank on better snowblower and rock salt sales to do better than that this go around.


But as noted, Keep a Trade a Trade! After 1Q, you’re gonna need to bank on a housing recovery. If you’re in that camp, then we wish you the best of luck – you’ll need it. Actually, to the extent your process supports a housing recovery, give our Macro team a call. They’ve got plenty of research that should help balance any such view.


Brian McGough


HD: Keep a Trade a Trade - hd1

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more