NAIC Announces New California State Tax Printer
In response to member demand, NAIC recently
announced an all-new software product designed specifically for investment clubs
in California—the 2002
NAIC California Tax Printer.
The 2002 NAIC California Tax Printer makes preparing your club’s
California state tax forms a breeze. The software takes just minutes to generate
“ready-to-mail,” official California State Form
565 and Schedule D for your
club, plus a Schedule K-1 for each
member. Just review and sign them, then pop them in the mail!
The 2002 NAIC
California Tax Printer is available by download only for the low price of
$39. Learn more at www.iclub.com/taxes/ca!
Home Depot – A Buying Opportunity or a Falling Knife?
by Dan Hess
This article on Home Depot inaugurates a new series, the Best of the I-Club-List. The I-Club-List, or ICL, is an email community run by NAIC where members can post thoughts and ideas about stock selections and portfolio management. It's a great source for thoughtful discussion and stock ideas. Subscription is free; just visit
http://www.better-investing.org/ and look under “Communities”.
Home Depot (NYSE HD) has long been a favorite of NAIC investors: it was the 5th most widely held stock in the Better Investing 100 for 2001 and appears frequently on the
NAIC Most Active List. Mark Robertson’s excellent article
Home (Depot) for the Holidays appeared in the December 2002 issue of Better Investing, and the ICL has seen no shortage of discussions on the stock.
The historic track record of sales and Earnings Per Share (EPS) for Home Depot has been recognized by many as indicative of a superb growth company. Sales at HD recently have slowed somewhat from the historic high growth rate, and the stock price has fallen from its high of about $70 in early 2000 to its current level in the low $20’s. HD's easily understood business model has prompted considerable discussion, many wondering whether this is a chance to purchase HD at a bargain price or the start of the demise of a very good growth company.
I have abstracted a few representative ICL posts.
One poster indicated that too few registers were open at HD stores, implying excessive wait time, while another indicated Lowes employees were more helpful. I did note that there were opposing views on this latter topic: some found HD employees more helpful, while others preferred Lowes, so perhaps it depends upon the store or the individuals involved. One investor visited and said that the Expo Design Center is “awesome.” One newcomer to investing astutely notes there has been a mass exodus of top employees since new CEO Bob Nardelli joined the company. Another investor notes that during the period from Jan 2000 to Jan 2001 PERT-type sell signals had occurred and wondered why NAICers continue to buy HD. There were also concerns about the company cannibalizing its own business by adding stores in close proximity to existing ones.
After reading all the ICL articles, I would list the following as possible causes for the Home Depot slowdown:
- Over-saturation of stores (cannibalization).
- HD stores less female-friendly than Lowes stores.
- HD sales personnel less friendly and helpful.
- Same-store sales slowing.
- Competition from Lowes.
Subsequent to Mark Robertson’s HD article last December, on Jan 2 HD issued an earnings warning indicating EPS for fiscal year 2002 ending Jan 30, 2003 would be between $1.53 to $1.55, up from the prior year’s $1.29, but down from previous estimates. The company attributed this to lower December sales and specifically a decline in same-store sales. In addition, they indicated a challenging environment well into fiscal year 2003. They indicated they would show their action plans to reverse this trend at an analyst meeting on Jan 17, 2003.
That meeting, which started at 8:00AM and ended at 2:30PM, covered a broad range of topics, but the clear focus was on how to improve same-store sales (That refers to stores open at least one year). While it is hard to reduce such a long meeting to a few words, I interpreted the main problem areas and planned actions to reverse the trend as follows:
Problem Areas
- Lack of friendliness and competence of sales people.
- Lack of visual quality in the HD stores compared to Lowes.
- Stores are not attractive to female shoppers.
- Aging of the stores.
- Low morale of salespeople.
Actions
- Increase the percentage of full-time versus part-time employees from 50% to 70%.
- Improve training of employees and store managers.
- Increase the knowledge level of sales people in departments requiring expertise.
- Implement a $250M remodeling of older stores.
- Continue new store expansion with $4B in 2003 up from $3.3B in 2002.
- Increase focus on new areas like appliances, tool rental, Expo, Pro & Flooring.
- Modify hiring program to hire better people.
This indicated HD management clearly acknowledged they had a problem and indicated the actions they planned to implement in response. One individual noted that HD’s CEO earned $6.5M in remuneration last year versus $1.6 for the Lowes CEO, while another suggested waiting to see if the new CEO’s management team is doing as good a job as the prior team. Others agreed, noting that as “a big ship,” it can take HD a long time to turn around. Others suggested we pay attention to actions rather than words: in other words, let’s wait and see what HD management really does.
Home Depot, still one of the top five BI 100 holdings, a company that continues to lead NAIC Most Active List as well as being a household name, continues to generate a great amount of interest. For anyone interested in HD, the ICL provides an abundance of excellent viewpoints to consider in making judgments for a Home Depot SSG.
This article is not intended to recommend any specific actions with respect to Home Depot stock, but rather aims to provide some information investors may wish to consider in preparing their stock study of the company. Dan Hess, a frequent contributor to the I-Club-List, is an individual investor associated with NAIC’s Central North Carolina Chapter.
NAIC Stock Prospector Special Offer Ends Tomorrow
NAIC's official stock screening software, NAIC Stock Prospector mines the Online Premium Services (OPS) datafiles to find great stocks for potential investment. The special introductory price of $49 is available for just one more day; on March 1, the price will go up to $59. Order at 1-877-275-6242, ext 0, or buy it online. More information and demo copies available at the ICLUBcentral website.
Every time I think about selling a stock, I think of Eddie Murphy in Trading Places (I highly recommend that movie if you haven't seen it). Eddie's character gets so excited in the heat of selling a commodity that he yells out "Sell, Sell, Sell." If only we were selling for millions of dollars. With our clubs, the selling is usually over a few hundred to a few thousand dollars. Whether you sell to capture millions of dollars, or fifty bucks, the decision to sell should not be taken lightly.
Even buy-and-hold gurus know that there are times when selling is necessary. Let's look at a few.
According to the NAIC, there are four reasons to sell your stock unrelated to the stock's performance.
- To reap the rewards of long-term investing (to buy a house, fund an education, start a family, etc.).
- Cash is needed for a departing member.
- Selling for income tax purposes. Selling a portfolio loser can offset a huge profit.
- Selling to maintain diversification. If your club is lucky to find a high-flyer, you may need to sell a portion of your holdings if that stock accounts for more than 20% of your portfolio. Also, if your club maintains a diversification of company sizes, you may need to sell on occasion to keep your portfolio diversified (i.e., Dell in 1992 was a small-cap. Now it is a large-cap stock. Should you adjust your portfolio?). Note: Small-cap stocks are generally considered to have market capitalizations less than $1 billion. Large-cap stocks have market capitalizations greater than $10 billion.
On a performance basis, the NAIC lists several factors to consider when selling a stock.
- Company's management changes and your club believes it is not good for the company or the stock.
- Sales or earnings are noticeably slowing/Profit margins are declining. This can be a warning sign of things to come. If the company you own releases poor earnings, be sure someone in the club does research on why.
- The company takes on too much debt, which may affect margins and leverage.
- Increasing competition is taking away the company's market share. This is very important. Remember what Dell did to Compaq.
- The company depends too much on one product. Remember, companies need to diversify just like our club portfolios.
- Economic conditions severely threaten the company. If gas prices were going sky-high with no sign of going down, would you want to invest in an airline stock, trucking company?
- The return of the stock is no longer compatible with your club philosophy. If your club's goal is to make 15% per year, and the company you own now grows at 5%, it will be very hard for that company's stock to move more than that.
If your club has noticed one of these factors in a company you own, be sure to go back and find out why the club originally bought the stock. That should give you some perspective. Good luck!
NAIC Classic Computer Class in Westford, MA
Saturday, March 1, 2003 from 9am-1pm
Fee $40
The enthusiastic and
knowledgable Rich Beaubien of ICLUBcentral is back to teach a computer course for the Mass Chapter. Rich is past president of the Chapter and very popular instructor.
Download a registration form here.
Complete the form(s) and mail it to:
NAIC Massachusetts Chapter
P.O. Box 314
W. Groton, MA 01472
if time is short, contact the NAIC Massachusetts Chapter:
E-mail: mass-naic@better-investing.org
Voice Mail: 508-337-2970 or 800-337-2970
Read past newsletters, subscribe, or unsubscribe at:
http://www.iclub.com/newsletters/
Copyright 2003 ICLUBcentral Inc. All rights reserved.
