The Home Depot, Inc. (NYSE:HD)
This is one of the most obvious plays on the recovering (yes, I know it’s slow) housing market. One of the first questions I get when talking up The Home Depot, Inc. (NYSE:HD)’s game is “Why not Lowe’s ?” A fair question, no doubt, but when I look at the two side to side, the answer to me is obvious. The Home Depot, Inc. (NYSE:HD)’s scale simply makes it more profitable:
| Metric | Home Depot | Lowe’s Companies, Inc. (NYSE:LOW) |
|---|---|---|
| Market capitalization | $116,863 | $47,916 |
| Revenue | $76,070 | $50,456 |
| Net income | $4,726 | $1,972 |
| Gross margin | 34.6% | 34.3% |
| Operating margin | 10.9% | 7.3% |
| Net margin | 6.2% | 3.9% |
| Dividend yield | 2% | 1.6% |
Source: S&P Capital IQ. Dollar amounts in millions.
Data from Freddie Mac’s most recent quarter tells us that as rates start ticking back up, the refinance boom is slowing down. And after all of this refinancing, I think many folks are going to be staying in their homes for a while. This means projects and renovations abound, and The Home Depot, Inc. (NYSE:HD) is one of the best ways for Foolish investors to play this trend.
McCormick & Company, Incorporated (NYSE:MKC)
I still gush about my trip to the McCormick & Company, Incorporated (NYSE:MKC) spice factory in Hunt Valley, Md. As someone who cooks a decent bit, it was just really cool to see how the operation works. It’s more than just “spices”; it’s science. They have labs where they perform research and try new things; it was just really cool. But I’m not picking this stock with my heart. Nope, I also love the fact that McCormick has a spot in virtually every pantry in the country. Open yours up, I bet you have a McCormick & Company, Incorporated (NYSE:MKC) product in there. And it’s this ubiquitous presence that has helped McCormick grow sales at a 7% annualized clip over the past five years.
About 40% of McCormick & Company, Incorporated (NYSE:MKC)’s sales come from its industrial business, which accounts for some big clients — and by big, I mean Yum! Brands, Inc. (NYSE:YUM) big. And while this is lower-margin revenue, it’s certainly still very positive and leads to very sticky, long-term relationships. The fact that about 40% of the company’s revenue is tied to overseas markets as well offers some nice diversity for investors. In fact, McCormick & Company, Incorporated (NYSE:MKC) just completed its acquisition of Wuhan Asia-Pacific Condiments, which opens it up to additional market share gains in China and a long, flavorful future.
Awesome returns are the spice of life
The word “taper” seems to be on the tip of many investors’ tongues these days, but who knows when the Fed is going to take its foot off the gas? And furthermore, does this even make you want to stop investing? It’s understandable that investors are a bit nervous, I get that. That’s why it’s more important than ever to make sure the companies we’re buying have durable competitive advantages, healthy financials, and room to grow. The Home Depot, Inc. (NYSE:HD) and McCormick & Company, Incorporated (NYSE:MKC) fit the bill, and for Foolish investors with a longer time horizon, they represent two excellent opportunities for a lifetime of market-beating returns.
The article These Stocks Could Lead You to a Lifetime of Market-Beating Returns originally appeared on Fool.com and is written by Jason Moser.
Jason Moser has no position in any stocks mentioned. The Motley Fool recommends Home Depot, Lowe’s, and McCormick.
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