Is This Inflation Fighting Stock A Buy To Protect Your Retirement?
Over the last several weeks I’ve warned you that inflation is coming fast…
And it’s now officially here…
The Consumer Price Index (CPI) – measure of inflation – rose 0.9% from March to April… This is the fastest one month rise in inflation since 1981. And this is without food and energy prices.
With the so called “all items index” inflation rose 4.2% in the last year.
And it was even worse when looking at individual line items.
Vehicle prices rose 10% in April… This is the largest 1 month increase since this data began getting collected in 1953.
The total energy index saw prices rise 25.1% in the last year.
And gasoline prices rose 49.6% in the last year.
Yes, some of these yearly increases are because this time last year we were in full Covid lockdown mode.
But that doesn’t explain the huge month to month gains.
Why is this happening?
Because of the trillions of dollars the federal government keeps pumping into the economy.
This is giving people more money to spend… But the supply for pretty much everything is lower due to Covid related backlogs, shutdowns, and shortages we’re still dealing with.
And when you have high demand and low supply it leads to higher prices and rising inflation.
Historically, these numbers lag which means we will see even higher inflation in the months to come.
Especially since Biden and the Democrats want to spend another $2 trillion on infrastructure.
Inflation is a retirement portfolio killer that could literally wipe away your entire nest egg if things get out of control.
But today’s company doesn’t just protect your portfolio from inflation… It benefits from it.
Back in March 2021, I told you to avoid Home Depot due to its high valuation… But that was before inflation started skyrocketing.
With that now happening should you buy Home Depot to not only protect your portfolio during inflation… But benefit from it too?
Before I get to that I need to explain to you how Home Depot benefits from inflation.
How Home Depot Benefits From Inflation.
I won’t give full context here… If you want that you can read the following articles where I go into more detail about inflation.
- Inflation Is Here – Should You Buy This 3.4% Dividend Payer To Protect Your Retirement?
- Is Biden Destined To Become The Next Jimmy Carter?
- 3 Questions That Will Help Save Your Retirement From Inflation
Inflation is a retirement and investment return killer… So how will Home Depot benefit from inflation?
Because many of the commodities skyrocketing in price right now – steel, copper, lumber, etc. – Home Depot sells to its customers to do home renovations.
And because its costs are rising – it can raise the prices on these products that it sells to customers.
This means higher revenues for Home Depot and more stable and possibly growing margins.
At worst, Home Depot may not be able to increase costs to its customers as fast as it would like if inflation keeps rising fast.
But when it does raise its prices, it protects its margins and passes this extra cost onto the customer.
Not great for anyone looking to do a home renovation right now… But great for you as a potential shareholder of Home Depot stock.
If you want to find out why I told you to avoid it back in March, you can read the article below.
Because we’ve been stuck at our homes for the better part of a year and a half now with not much else to do… Home Depot revenue, profits, and cash flows all reached record levels in 2020 as most companies flailed.
Because if you’re stuck in your house for months on end, you’re likely to notice there are some things you can do to fix it up.
This has led people into Home Depot in droves in 2020… And that’s continued into 2021.
On May 18th it reported more record numbers…
- Revenue was up 32.7% in the year-to-year quarterly period to $37.5 billion.
- Operating profit rose 76.5% in the year-to-year quarterly period to $5.8 billion.
- And earnings per share jumped 85.2% in the year-to-year quarterly period to $4.2 billion.
This isn’t good… Or even great… Its spectacular.
And because it can raise prices on many of the commodities that are skyrocketing in price right now, these fantastic results will continue.
So, should you buy its shares now to protect your retirement from inflation?
Unfortunately, no… Its still too overvalued to buy now. But only by a hair.
Its P/E is now 23.
Its P/CF is 17.5.
Its forward P/E is 23.9.
And its EV/EBIT is now 18.
On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.
And on EV/EBIT I look to buy stocks below 8.
These metrics combined show that HD is overvalued right now by a small margin.
And this means owning its stock does not give you a large margin of safety in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning it in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning its stock going forward.
With HD being overvalued right now, its stock does not give you a large margin of safety.
And for this reason, you need to remain patient and wait to buy it.
Yes, even though it will continue doing great things.
If you wait, you’ll make more money and keep your retirement portfolio safer.
Recommendation – Avoid Home Depot until its cheaper to protect your retirement portfolio.
And consider investing in some of these stocks instead for your retirement portfolio.
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- Buy This 7.9% Dividend King Today
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.
P.S. Breaking Poll – Is Biden Failing Economically As President? Vote Here