Warren Buffett's Next Move: Should He Revisit The Home Depot?
Warren Buffett, renowned for his stock-picking prowess, has shown interest in Home Depot in the past. Berkshire Hathaway, his investment vehicle, held shares for a decade before selling in 2009. Since then, the stock has soared, raising questions about Buffett's current stance on the home improvement retailer.
Buffett, known as a 'business picker', might appreciate Home Depot's robust operating margin of 13.1% and return on invested capital (ROIC) of around 31.2%. Despite selling his stake, Buffett has recently invested in homebuilders D.R. Horton and Lennar, suggesting familiarity with trends benefiting Home Depot. The company's total return since 2009, at around 2,370%, is impressive, though it's worth noting that Home Depot's stock has increased by approximately 1,570% since Buffett exited, more than double Berkshire Hathaway's gain during the same period.
If Buffett were to seek advice today, the author would recommend Home Depot. The company's stable business model, attractive dividends, and potential for price appreciation align with Buffett's preference for durable consumer goods companies. Moreover, the increasing median age of U.S. homes could drive demand for home improvement products, further boosting Home Depot's prospects. Despite its high valuation, Home Depot's forward P/E ratio is lower than some stocks recently purchased by Berkshire Hathaway, making it an attractive option.
While Warren Buffett sold his stake in Home Depot over a decade ago, the company's strong financials and growth potential make a compelling case for reinvestment. Given Buffett's recent interest in homebuilders and his appreciation for solid business models, Home Depot could be a worthy addition to Berkshire Hathaway's portfolio today.
