Perhaps David Batchelder, a director of Home Depot, was inspired by the Easter theme of the resurrection when he decided earlier this week to spend more than $28 million to purchase 1.1 million shares of the home improvement retailer's stock. Batchelder now owns 1.9% of Home Depot. Not surprisingly news of the transaction sent shares of the beleaguered retailer sharply higher in Thursday's trading.
But should you follow the lead of this insider and start accumulating Home Depot stock? Investors often perceive insider buying as a strong (re)entry signal for beaten down stocks. Home Depot definitely fits that description, as the company has seen its share price tumble by 27% over the past year. Nevertheless, there is no reason to hurry back into the stock -- despite the bold action taken by Mr. Batchelder.
First of all, the housing market isn't getting any better as evidenced by the weakness in the most recent housing starts data. Fewer homes being built means less commercial business for granite countertops, kitchen cabinets, floor tile, etc. Meanwhile, the lifeblood of home remodeling projects -- home equity loans -- are increasingly difficult to come by these days. Toss in the slumping economy and reduced consumer spending into the mix and it's safe to assume that the pace of remodeling efforts will remain slow for the balance of 2008 and into 2009.
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