One year ago, two of our top Fools sparred over home-improvement giant Home Depot
Ready, set, fight!
Ryan Fuhrmann said that Home Depot was temporarily undervalued, and should rebound nicely once the market came to its senses. In the never-ending match of wits with rival Lowe's
He likened the stock to that of Microsoft
Ryan saw plenty of opportunity for growth, since the terrible twosome combined for just 24% of a $700 billion annual market. Mispriced stocks can't last forever, right?
You can do it. We can't help.
On the other side of the fence stood chronic curmudgeon Seth Jayson, ready to fire off three main complaints about Home Depot -- a stock he owned himself. Here they are:
- The housing bust and the economy.
- Competition and scale.
- Jerks in the executive suite.
In Seth's opinion, the deflating housing bubble would eventually harm more than the do-it-yourself market, engulfing commercial builders as well, and finally the entire economy. His local warehouse was "a dirty, unorganized store, rife with visible theft (pilfered bubble packs, etc.) and staffed with unhelpful, profane associates," and he figured that the $350 million budget for remodeling and hiring more help would go about as far as a loogie against hurricane winds.
And Seth figured that the problems started at the top, with CEO Bob Nardelli. The boss man's blowing off shareholder questions at the recent annual meeting showed how disconnected the guy was from the real world, where his customers lived. Seth suggested that the board give him the boot and install someone with a better grip on customer service. After all, Seth said that he didn't think "a guy who has hauled in some $250 million over the past five years has any idea what it's like to walk into a Home Depot in need of help."
With all that said and done, it was time for the popular vote, which Ryan won hands down with 58% of 198 votes. Seth garnered a mere 31% of the tally, and 12% just wanted to let us know that they couldn't pick a winner. Score one for the bull.
Here's a fun tidbit: Both duelists owned Home Depot stock last year. As it turns out, they still do. Even the bear has voted with his wallet -- in favor of his opponent.
Some things have gone Seth's way, though: Nardelli was indeed ousted from Home Depot, though he probably wasn't crying too hard when he cashed in that $210 million severance package. Bob is now CEO of newly privatized Chrysler instead, with an annual base salary of $1 -- though some say the deal consists of mostly incentive-based bonuses. Ya think? In his place, Home Depot has installed Frank Blake, another ex-General Electric
The share price has continued to look bearish, too. Both of the home improvement giants have underperformed the S&P 500 since the original duel, but with Home Depot down nearly 5% since then, it's the weakest of the bunch.
In our Motley Fool CAPS database, Lowe's has settled at three stars, while Big Orange seems stuck on two stars through thick and thin.
The total picture shows a real-world win for Seth, in spite of himself.
OK, my turn. I'm with Seth on this one.
The housing downturn has indeed hurt the DIY suppliers, and it's almost impossible to call the bottom of that crash in advance. What's obvious is that we're not there yet, judging by the trouble with Countrywide Financial and its peers. So I'm happy to sit on the sidelines in this sector.
If I absolutely had to pick a home improvement stock, though, I'd probably have to go with Lowe's. The smaller rival is growing faster while sporting stronger margins than Home Depot, across the board. Yes, Home Depot trades at a lower P/E ratio -- but that investor skepticism looks warranted to me.
Refreshing thousands of massive warehouse stores is an expensive project, and I'm not sure it would even help much. The core of the company's problems lies with customer service, which isn't something you can just build into a store. It takes quality recruiting efforts, good training, a strong corporate culture, and time. Come back in a couple of years and ask again. For now, I'll have to overturn the decision of our voters and raise Seth's furry paw in a late victory. Or late loss, for current shareholders like the victor himself.
Johnson & Johnson is a Motley Fool Income Investor recommendation, and the Microsoft, Home Depot, and Wal-Mart trifecta of titans is on our Inside Value scorecard. What does Philip Durell see in the orange that Seth and Anders don't? Take a free 30-day trial and find out for yourself.
Fool contributor Anders Bylund holds no position in any of the companies discussed here. He did own both Home Depot and Johnson & Johnson stock early in his investing career, before he figured out his own style. That was many moons ago. You can check out Anders' holdings if you like, and Foolish disclosure looks great in an orange apron.