Cramer: Home Depot’s (HD) the Way to Play Housing Bottom

“No, I want you to hold on Home Depot I bought some today at 22 bucks. I’ll send out an alert on actionalertsplus.com. Saying look this is terrific. I would buy lower. That yield looks safe to me and I think that company is make a big turn and I think that housing is about to bottom. I want to buy Home Depot it’s a great way to buy housing. It’s better than buying Lennar’s or KB Homes.” CNBC’s Mad Money on Tuesday, March 31, 2009.

Home DepotCramer has gone on record quite a few times saying that he thinks the bottom for the housing market will come in mid-2009. Now that we are beginning the month of April, that prediction is getting down to crunch time. There have been signs that housing is starting to find its footing with existing home sales improving last month, but this is in no way a panacea for the housing market. As we noted yesterday (Lennar: Home Builders Still Risky), business is still very slow for home builders as there is still a fair amount of inventory of homes for sale. Home building dragged down the construction data released Wednesday morning, even as the non residential building was slightly better. However, this is what needs to happen to bring supply and demand back into equilibrium, and allow housing prices to stabilize. Apparently Cramer believes that the excess inventory could quickly evaporate should the possible stabilization in housing become more pronounced. The “buyers on the sidelines” will be pulled into the housing market in the belief that there are great deals to be had.

We absolutely agree with Cramer about the fact that The Home Depot (HD) is a better buy right now than the home builders. Compared to historically normal range of price-to-sales and price-to-cash flow The Home Depot is slightly below these historical norms, which suggests that it is Undervalued. Obviously, Home Depot does best when the housing market is chugging along because people are renovating through home equity loans, and doing smaller upgrades from new home buys. Fundamentally, Home Depot has fallen off quite a bit during the down turn as earnings and revenue are both down considerably. Estimates are for sales to slip by 9% this year (fiscal 2010, ending next January) and to remain flat for the following year. However, Home Depot has a great opportunity to beat these sales projections if the housing market does indeed rebound.

Cramer: Home Depot’s the Way to Play Housing Bottom

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