Home Depot (HD) is presented as a strong candidate for a "Buffett stock," characterized by its robust operating margin of 13.1% and a high return on invested capital (ROIC) of 31.2%, alongside a business model that benefits from aging U.S. housing stock. Although its current P/E ratio near 26 raises valuation questions, the analysis points out that Berkshire Hathaway has historically invested in companies with higher multiples. The article underscores HD's substantial outperformance since Warren Buffett sold his stake in 2009, suggesting its continued appeal as a quality long-term investment.
Key PointsThe Home Depot has several characteristics of a Buffett stock. One fly in the ointment, though, is its relatively high valuation. However, Buffett and his team have bought even more expensive stocks in the past. - 10 stocks we like better than Home Depot › The Home Depot has several characteristics of a Buffett stock. One fly in the ointment, though, is its relatively high valuation. However, Buffett and his team have bought even more expensive stocks in the past. Does Warren Buffett need help selecting stocks? Of course not. He's done a really good job of doing it all on his own for decades. Sure, the legendary investor would likely insist that he's a "business picker" rather than a stock picker. Buffett would also probably point out that he has farmed out some of the decision-making to his two investment managers, Todd Combs and Ted Weschler, for quite a while. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now, when you join Stock Advisor. See the stocks » But let's suppose that Buffett asked me to give him a hand choosing one stock to buy for Berkshire Hathaway's (NYSE: BRK.A) (NYSE: BRK.B) portfolio. If that wild scenario happened today, which stock would I recommend? I think I'd go with The Home Depot (NYSE: HD). Why Home Depot would make a great Buffett stock I view Home Depot as a great Buffett stock in part because it once was a Buffett stock. He initiated a position in the home improvement giant 20 years ago but eventually sold all of Berkshire's stake in the second quarter of 2009. Buffett might wish he had held onto those shares in retrospect. Over the 14 years since he exited Berkshire's position in Home Depot, the stock has skyrocketed roughly 1,570%. That's more than double the gain delivered by Berkshire Hathaway itself. The Home Depot's total return, including reinvesting dividends, since Buffett bailed on the stock in 2009 is around 2,370%. The Oracle of Omaha would probably like Home Depot's solid operating margin of 13.1%. I suspect that he would absolutely love the company's return on invested capital (ROIC) of around 31.2%. We don't have to worry about Buffett not liking Home Depot's business. It's certainly one that he understands. Buffett has even recently bought stocks that benefit from some of the same trends as Home Depot -- homebuilders D.R. Horton (NYSE: DHI) and both share classes of Lennar (NYSE: LEN) (NYSE: LEN.B). The median age of U.S. homes has increased quite a bit since Buffett last owned Home Depot. It stood at 41 years in 2023, according to the American Community Survey. Aging homes bode well for demand for home improvement products and supplies over the coming years. The fly in the ointment Is Home Depot the perfect Buffett stock? I wouldn't go that far. There is one fly in the ointment. Like many stocks these days, Home Depot has a relatively high valuation. Its trailing 12-month price-to-earnings (P/E) ratio and its forward P/E are close to 26. Buffett learned from the father of value investing, Benjamin Graham. Would he balk at paying such a premium for Home Depot? Maybe, but maybe not. Berkshire bought 12 stocks in Q2. Several of them were bargains that you'd expect Buffett to like. However, two had forward earnings multiples that have been consistently higher than Home Depot's all year: Heico (NYSE: HEI), which currently trades at a sky-high 66.8 times forward earnings estimates, and Pool Corp. (NASDAQ: POOL), which has a forward P/E of 28.7. Perhaps Heico and Pool are part of the portfolio managed by Combs and Wexler. However, Buffett hasn't been afraid of paying more for quality in the past when he's been confident about a company's long-term earnings growth prospects. Is Home Depot a good pick for every investor? I selected Home Depot because it was a stock I thought would fit well with Buffett's investing style. Is this stock a good pick for every investor? Probably not. I suspect that a purist value investor (which I don't think describes Buffett, by the way) would prefer to quickly move past Home Depot for the reasons already discussed. The home improvement retailer's dividend yield of 2.3% might not be juicy enough for some income investors. And growth-oriented investors can certainly find stocks that are more likely to deliver stronger earnings growth than Home Depot. And even though Home Depot is the stock I'd pick for Buffett, I don't personally own it. I like the stock, but I like others more. And, unlike Buffett, I'm not sitting atop a cash stockpile of $344 billion. Should you invest $1,000 in Home Depot right now? Before you buy stock in Home Depot, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Home Depot wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $621,976! Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,150,085! Now, it’s worth noting Stock Advisor’s total average return is 1,058% — a market-crushing outperformance compared to 191% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor. Stock Advisor returns as of September 29, 2025 Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway, D.R. Horton, Home Depot, and Lennar. The Motley Fool recommends Heico. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Home Depot (HD) is presented as a high-quality company with fundamentals that align with a long-term, quality-focused investment strategy. The company exhibits a solid operating margin of 13.1% and a particularly strong return on invested capital (ROIC) of approximately 31.2%. This financial strength is supported by a significant secular tailwind from the aging U.S. housing stock, where the median home age reached 41 years in 2023, suggesting sustained demand for home improvement. The primary identified risk is valuation, with the stock trading at a price-to-earnings (P/E) ratio of approximately 26 on both a trailing and forward basis. However, this concern is contextualized by Berkshire Hathaway's own recent investments in companies with higher multiples, such as Heico (HEI) and Pool Corp. (POOL), indicating a potential willingness among quality-oriented investors to pay a premium. The analysis also notes that Berkshire's 2009 sale of its HD stake preceded a total return of around 2,370% for the stock, highlighting the potential opportunity cost of overlooking quality for a lower valuation.
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