Jim Cramer reiterated his bullish stance for the direction of the market, despite the substantial gains in many equities over the last five months. After Monday’s ugly selloff, Cramer was heartened by the return to positive returns on Tuesday and used the reports from Home Depot (HD) and Target (TGT) as evidence that back to school and home improvement spending may not be as weak as some analysts had suspected.
“Okay, let me give you this view of things. First, today, Target and Home Depot just joined Kohl’s and Walmart saying that sales and profits are getting better. To me, target and Home Depot close to — that is retail, isn’t it? I mean, if we’re not going to have a back-to-school season, wouldn’t they know? Walmart and Target are the two biggest back-to-school stores in the country and they say they’re encouraged about back-to-school season.” — CNBC’s Mad Money 8/18/2009
Later in the show, the discussion turned back to why Cramer likes Home Depot over its home improvement competitor Lowe’s (LOW). Among his reasons is the exceptional job that CEO Frank Blake is doing to streamline inventory and improve customer service. Home Depot has been in recovery ever since the departure of Bob Nardelli, and the efforts are starting to pay dividends. In contrast, Lowe’s is blaming its recent struggles on the behavior of consumers, which is never a good sign. Cramer goes on to say Lowe’s is holding too many expensive items in inventory that consumers simply cannot afford right now.
The bottom line is that Home Depot is executing in a difficult environment while Lowe’s was resistant to adapt to this environment. That is why Lowe’s missed their numbers, while Home Depot exceeded expectations and raised guidance. According to Cramer, next stop for Home Depot is $30, and by our value methodology, we cannot disagree as the current improving fundamentals HD could reach the mid-$30’s relatively soon.
For more details on this and other discussions from last night’s Mad Money, please visit our Mad Money recap page.
