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Jim Cramer (1:55)
Hey, I'm Kramer. Welcome to Mad Money. Welcome to Kramer arc. I'll be with my friends. I'm. I'm just trying to help you make some money. My job is not just entertain, but to educate and teach you. So call me at 173cbc or we at Jim Cramer. One year ago today, one year today, we bought the stock of Home Depot for the Travel Trust. We were looking for a rate cut. September Fed meeting Historically a terrific boost to the stock of this tremendous chain. Oh, we got that rate cut, but it didn't do what it was supposed to. Longer term treasury yields spiked in response to sending mortgage rates higher and starting a huge descent for the stock of Home Depot. But did we sell? No, we did the opposite. And we told you to do so too. We bought more and more and told club members, at last this is your chance to get big in the stock of Home Depot, which you don't usually get to do. Why do we do that? Because of days like today when the stock shot of $6 and change and the franchise value shines. Part of a general market advance for Dow gained 3 or 50 points S&P advanced point A 2%. The Nasdaq jumped point 98%. Lots of pundits make fun of people like me who urge you to buy the dips. But not all stocks and not all dips are created equally. Some are a heck of a lot better than others. Home Depot is one of the better ones. Sure you had to endure some real pain over the last year and I'm sure some Climbers club members thought we were nuts with our relentless advocacy on of the chain buying it right into some ferocious selling. But now we're starting to see signs that the Fed has no choice but to start cutting again and it is time to reap the gains. Tomorrow we get the Labor Department's nonfarm labor report and all that predated that we just saw today. Job openings, ADP reports, exec surveys. They indicate that even though we have some tariff related inflation pressure, could be one time only the job market's weakening off that we're going to get that rate cut and it will be meaningful. And that's exactly the moment when when I think Home Depot is really going to spike. And you know what? When you buy the stock of a tremendous franchise like this company, you don't have to be right about all the details immediately. You just need conviction that one day you'll be real right. One day. That's why I want to spend some time tonight on what it means to buy the stock of the great franchise into weakness. Not some software as a service company or a red hot semiconductor equipment stock or the life sciences business. All of which are endless ragers until they aren't. But I'm a really very good grade growth retailer that we all know with a terrific reputation that can take a liking and keep on taking. First let me just say that I do like the semis and the software companies. I'm fine with health care. I like growth wherever I can find it. You never go wrong with tech growth as long as it's measured and profitable. But often it isn't. Growth does come though in many forms and one of them is in retail. I have my stable retailers that I know are well managed companies that can deliver in any environment. Not immediately though. I Home Depot stock traded down to the 330s at its post liberation day lows after we bought it a year ago. Now we did buy pretty much the whole way down. We bought it for the trust give us a great cost basis. Now we are up nicely with the stock back to 4 and 11 change even as nothing much has happened yet. In fact, Home Depot missed the last quarter and the stock opened down big again. Another alert from us to buy on a rebound. When management told us on the conference call that the quarter started slowly but then got better and better. That's called a good cadence. How did I know that the dip buying so castigated by so many wise talking heads I see on TV would work? Because the stock of Home Depot met a six part criteria I have always used when I want to buy a quality growth retailer into weakness. Here are the six. First, do you personally shop there? I don't ever want you to buy a retailer that I don't. You don't shop and that'd be ridiculous. I'm a gardener. That means actually medically I go to Home Depot. If I thought by the way my Home Depot or Home Depot more than one were dirty or didn't have good customer service or didn't take care of their plant inventory, you got to spray them all the time. I couldn't justify owning the stock. If I bought the stock and then it went down, you know what would happen? I just give up and I kick it out. Oh, buy high, sell low. Now there is an ill advised strategy. There's a reason by the way, that the trust also owns Costco. We shop there constantly. We have four different Costco's where I live and I always visit one if I see one. I do that because it's a core position but also because my wife and I just can't stay away from the place. I've never been worried. Richard Galante, the former CFO put the fear of God into all of Costco suppliers to ensure they kept prices low. The Costco carts one of the best bargains on earth. But if I didn't walk the stores I wouldn't know to buy more stock. But I don't go to American Eagle Outfitters. Today's rager. Don't ask me about that woman who knows about her jeans. What takes that. That seems like a real one off one of me. I always used to shop at Target but now I shop there when I'm in San Francisco because I think it costs too much. But Home Depot, well, prices good, service fabulous. Second, how's the balance sheet? If you listen to Tony Spring last night, the CEO is turning Macy's around. He seemed most proud of how he'd been able to improve the balance sheet at that was a very cyclical retailer. And you know when you're in a cyclical business like retailing, you can't afford to have a Weak balance sheet Home Depot. In 2007, we had the worst housing crisis this nation had seen since the Great Depression. Every hedge fund manager and his second or third cousin shorted anything housing related, including Home Depot. Oh, they all made out like bandits betting against the Lenar and the Dr. Horton. But those who bet against Home Depot. Sorry, why? Amazing balance sheet. That's why it's a cash flow machine. It came out so on top that people who bought it and stuck with it made fortunes. I remember that. Third, you need a management team that refuses to sit still and wait. Home Depot recognized that the housing industry wasn't going anywhere in the last few years thanks to a lack of inventory and higher interest rates. So it decided to play into its own strengths and acquire businesses that work well with professional contractors. Businesses that excel in roofing pools, ceilings, ones that could deliver to job sites. Ones that could work even if homebuilding slowed down, which it did. Fourth, you need a management that wants lower interest rates but doesn't need them. I don't like any stock that needs the Fed to be helpful. That's all I have to do is keep watching the Fed. Those are for suckers. You can't just sit there and sweat about what the Fed's going to do. You want to be able to make money even when the Fed's not inclined to bless us with lower rates. Then you can really clean up when they finally do start cutting. Fifth, you need what we call scale. You have to be so powerful and have such a large footprint that you can manhandle your suppliers. They all need your short their shelf space and not vice versa. A company like Home Depot has leverage over suppliers, so if something happens like the tariffs, they can tell anyone who's really raising prices beyond reason. Cut it out or you're out of the store. Scale is might make it right. 6. And finally, is it good enough that you don't have to trade it? Home Depot has a solid 2.23% dividend yield. You can own it and let that dividend compound over time. You have no need to flit in and out of the stock. Trading in and out is another rarely rewarding strategy because it's almost impossible to time it right. When you buy quality, you can let it compound for the rest of your life. And that's how the big money is made. Oh, and the bottom line, when the Fed does start cutting, your slow growing retailer stock gets turbocharged as all the so called smart money then comes flying in. If you bought the stock on the dip like we suggested, you now have the privilege to call those people chasing the stock phone depot by their real names, dumb money. And I only put it that politely because there's some words that you can't say on basic cable or even streaming. Go to Jonathan in New York. Jonathan, what's going on? Jim Cramer. What's going on, buddy? I don't know. I'm liking the tape. We got this one, right? I told the club members, nice call. Let's go to work. Wonderful. Good to hear. Listen, buddy, I'm calling about this trade desk. You know, I want it. I owned it before the pandemic and I sold it. And I've always wanted to get back into it, and now it's at that April price, but it's down 55%. I like Jeff, but they've got Amazon as a competitor and you know, Amazon is one of my absolute favorite companies, and I don't want to go against Amazon. Can you make some money? Yeah, but there are other ways to make money that are easier and better. How about go to Vijay in Massachusetts. Vijay? Hi, James.