Is The Home Depot (HD) A Smart Long-Term Buy?

Madison Funds, an independent investment management firm, published its fourth quarter 2020 “Madison Mid Cap Fund” investor letter – a copy of which can be downloaded here. A return of 15.54% was recorded by the fund’s Class Y shares in the fourth quarter of 2020, below its Russell Midcap benchmark that delivered a 19.91% return in the same period. You can view the complete list of the fund’s Average Annual Total Returns and its top 5 holdings to have a peek at their top bets for 2021.

Madison Mid Cap Fund, in their Q4 2020 investor letter, mentioned HD Supply, which was eventually acquired by The Home Depot, Inc. (NYSE: HD), and emphasized their views on the company. The Home Depot, Inc. is an Atlanta, Georgia-based home improvement company that currently has a $327.2 billion market capitalization. Since the beginning of the year, HD delivered a 14.38% return, extending its 12-month gains to 59.44%. As of March 26, 2021, the stock closed at $303.81 per share.

Here is what Madison Mid Cap Fund has to say about The Home Depot, Inc. in their Q4 2020 investor letter:

“At the very end of the year, we received cash for our shares of HD Supply, which had agreed to be acquired by Home Depot. We initially invested in the summer of 2019, so it was a short but successful investment. It’s full circle for Home Depot, as this was a business that it used to own (no prize for guessing what the “HD” in HD Supply stood for) but had divested in 2007 when a new CEO took over and was intent on simplifying the company to clean up the mess created by his predecessor. Today, Home Depot is much stronger company, and HD Supply too is a much stronger and more focused company, having itself shed many businesses to concentrate on its crown jewel, the facilities distribution business. While we certainly contemplated that it might get acquired at some point given that there were a handful of logical buyers, our investment didn’t rely on that happening. We would have been happy to hold on for a longer ride. But we’re not going to complain about a bird in hand.”

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Our calculations show that The Home Depot, Inc. (NYSE: HD) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, The Home Depot, Inc. was in 79 hedge fund portfolios, compared to 73 funds in the third quarter. HD delivered a 12.14% return in the past 3 months.