Top 5 Stocks to Buy Now According To Secretive Billionaire Quant Hedge Fund Manager

2. Home Depot (NYSE: HD)

The home improvement retailer Home Depot (NYSE: HD) has been in the Two Sigma Advisor’s portfolio since 2013. The home improvement stock has generated massive returns for the quant hedge fund in the past year both in the form of share price gains and dividends. This is the second-largest stock investment of a billionaire hedge fund, according to the latest filings.

Shares of Home Depot soared 25% this year, and are up 104% in the last five years. It has raised dividends in the past 11 straight years, with a five-year dividend growth average of 23%.

Ensemble Capital shared its bullish HD thesis in a recent investor letter:

“Home Depot, Inc. (3.7% weight in portfolio): Home Depot is a newer addition to the Fund. However, we’ve followed the home improvement space for many years and we’re particularly excited about the opportunity ahead for Home Depot. In the years since the housing bust, the company has managed to increase revenue by 60% and earnings by 240% even while only increasing their store count by just 2%. This sort of disciplined execution has led to the company exhibiting returns on invested capital far above most other established retailers, although Starbucks, another holding of ours also generates very high returns on capital.

As discussed during our notes on First American (above), we do expect housing activity to come to a standstill in the near term. However, Home Depot is deemed an essential business and their stores remain open. With ultra-low interest rates enabling cash out refinancing and with a homeowner’s deck that needed repairs prior to the Coronavirus still needing to be repaired after this is over, we expect an explosion of pent up demand to come back to the home improvement sector when the crisis has passed. Just as housing transactions were growing rapidly in January and February, most leading indicators of home improvement activity were also accelerating going into this period.

As anyone who owns a house knows, it is often easy to overlook cosmetic issues in a house you’ve lived in a long time or defer maintenance on small items. But after being stuck in their homes for a month or two, it would not surprise us at all if many homeowners emerge with a long list of items they want to fix. And while Home Depot is the leader in their category and we feel confident they can get through this crisis, the same cannot be said of the large number of local hardware stores which collectively still have a meaningful portion of home improvement market share.”