After the Storm: Buy Home Depot, Sell Lowe's

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The Home DepotHurricane Irene has come and gone, leaving a watery mess of destruction and powerless homes in its wake.

Home improvement stores are the one investing niche that always sets off radars when nature delivers a pummeling. After all, it's these hardware superstores that are transformed into popular outlets for plywood, generators, and batteries before the storms blow into town. These same retailers then see their home improvement supplies fly off the shelves as homeowners and landlords restore their properties after the storm.

Home Depot (HD) and Lowe's (LOW) are the two biggest publicly traded players in this space, and, as an investor, your best bet at this point is to go with the folks donning the orange aprons.

Home Stock, Sweet Home Stock

Investors didn't have a lot of reasons to be optimistic heading toward the latest quarterly reports out of Home Depot and Lowe's earlier this month.

Hardwood flooring specialist Lumber Liquidators (LL) and outdoor patio outfitter Trex (TREX) had dramatically hosed down their near-term expectations earlier in the summer. Folks just weren't interested in laying out fresh planks or finished wood on their floors or weatherproofed wood-alternative decking outside.

Thankfully, Lowe's and Home Depot didn't follow suit. Both do-it-yourself chains posted better-than-expected results, though the market leader is the one that truly stood out.

Home Depot's profitability grew by 14% during the quarter. Comparable-store sales climbed 4.3% during the period, a still-impressive 3.5% if we key in on stateside locations. Home Depot also bumped up its guidance for the entire fiscal year.
Lowe's didn't clean up as nicely, posting flat net earnings growth as comps slipped 0.3% during the quarter. Same-store sales are off by 1.7% through the first six months of the fiscal year.

Multiplying Two-by-Fours

The two superstores have similar metrics. Home Depot is fetching 14 times this year's projected earnings, while Lowe's is fetching just 13 times Wall Street's profit forecast for the identical fiscal year. However, Home Depot is the speedier one. The pros see Home Depot's income per share growing by 16% this year and 14% next year. Analysts are targeting 10% and 13% bottom-line growth at Lowe's over the next two years, respectively.

Both stocks have similar payouts. Home Depot is yielding 2.9% to the 2.8% rate that Lowe's investors are collecting.

A few years ago, Lowe's was the better pick: The smaller chain had more room to grow. Its better-lit stores and appealing decor made it a hit, particularly with female shoppers.

Times have changed. Home Depot cleaned up the sawdust, eyed international opportunities, and now it's the one with the better foundation.

I live in Miami and have seen Andrew, Katrina, and Wilma blow through here -- along with countless other named storms that proved to be more close calls than catastrophic. As an investor, I'll stick with Home Depot.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Lumber Liquidators Holdings. Motley Fool newsletter services have recommended buying shares of The Home Depot, Lumber Liquidators Holdings, and Lowe's Companies.



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11 Comments

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notawhackjob

HOME DEPOT WENT IN THE TOILET AFTER BOB NARDELLI GOT DONE WITH THEM. SAME REASON CHRYSLER WENT DOWN TOO!

August 31 2011 at 8:18 AM Report abuse rate up rate down Reply
glassguy2

my wife is a lowes employee ,and all the customers that comes in hates home depot, smaller stores ,no help ,how can they possibly be number one ? prices are 1.00 per board or more higher on most wood , i do not get it . maybe they are in smaller towns . i would love a true answer

August 30 2011 at 4:33 PM Report abuse rate up rate down Reply
baydolphins2003n

I only wish I could shop at Lowes. All we have within 120 miles is Home Depot. I have to wait to go to my other home to shop Lowes but I love it.

August 30 2011 at 12:10 PM Report abuse rate up rate down Reply
Susie

I always shop at Lowes..........their employees are much more friendly, helpful, and knowledgable than those at Home Depot.

August 30 2011 at 9:12 AM Report abuse +1 rate up rate down Reply
i4u2fer

My association with both of these box stores and association with this story goes in a credit-decision direction. When I short sold my home last November due to a precipitous income drop, Homo Depot was the first to pounce all over the sad occasion, they all of a sudden reviewed my credit history and then considered me a new found risk to further credit even after an unblemished 10 year credit history with their stores. They (HD) drastically lowered my credit limit just above my $3700 balance at the time which put me in a precarious position at the time. So, lucky me, I was quickly able to pay off the account and now I barely walk in their stores anymore. Their credit miscue arrogance cost them my business.

August 30 2011 at 9:11 AM Report abuse rate up rate down Reply
cgrayhoundman

Clarence

Lowes is surely the best stores. I have shopped at both stores for may years. Lowes seems to care more for your problems and willing to help to find it. They also have a Program here in Jacksonville that helps war veteran's greatly.They discount all sales to Veterans that the products or machinery is to be used personally. It sure has helped me trying to fix up a house I hope to sell eventually to reside in some home to help with my wife and my problems I have had for years.

August 30 2011 at 8:18 AM Report abuse +1 rate up rate down Reply
jeff

I will add another HD tidbit. 6 years ago I ordered several thousand dollars worth of construction materials for a project to be delivered. I had a crew stand by all day waiting. No delivery as scheduled. It was the same day HD outsourced their deliveries. I finally went to the store where they tried telling me delivery was completed. I offered to drive the manager to the project to show him nothing was there.
They finally got hold of the driver who stated that 1) it was getting dark, 2) she got lost, 3) yes she had already entered it as a completed delivery even though she had NOT done her job -gotta save those outsourced positions.
They stated they could attempt to deliver in 2 more days and no, they were not going to make up any of my losses due to their eff up!! I asked for a refund or my check back. They refused. I called my bank and cancelled before it could be presented and went next door to Lowes. They beat all their prices by 10%, guaranteed it to be on site at 8 am the next morning, did not charge for delivery, and did as they promised.
A few months later HD collections called about the cancelled check. I worked my way through the phones at corporate in Atlanta and explained to the CEO's secretary that they could take a flying leap and I would personally kick his rear after I sued the crap out of them for criminal interference with my credit.
Never heard another word.

August 30 2011 at 8:15 AM Report abuse +2 rate up rate down Reply
1 reply to jeff's comment
glassguy2

way to go Jeff ,i am a contractor also and this is what it takes.lowes do have their own crews

August 30 2011 at 4:39 PM Report abuse rate up rate down Reply
clindroth

Stock Market trading (8/29/11)
Wasn’t it great to have the sharks out of the water for a day? It is very sad that the only thing to keep the sharks (High Frequency Short Sellers) at bay is a Hurricane something our system can’t and/or won’t do. Cliff Lindroth, San Diego, CA

August 29 2011 at 4:28 PM Report abuse rate up rate down Reply
jeff

still Lowes has better service. HD it requires doing a Michael Jackson moonwalk to sneak up on employees to get any help

August 29 2011 at 4:00 PM Report abuse +3 rate up rate down Reply
1 reply to jeff's comment
davidl1950

You are absolutely right Jeff. If HD didn't have a store within 3 miles of my house I would only shop at Lowes, but the nearest store is 18 miles away. Last week I was at HD trying to buy some 8 foot sheets of rigid foam insulation and having a hell of a time getting it all on the stupid little cart. This 50+++ bald on top jerk with a long grey ponytail and an orange apron walked past me twice and ignored my request for help. Most of the time if I can get anyone to assist me at HD it is a pimply faced 19 year old who helps by standing there and staring at the display just like I was doing. Prices are a little higher at Lowest, but the selection is better, quality is a level better and, when it comes to appliances, HD only offers a very limited selection of GE whereas Lowes has a fabulous variety. By the way, in case HD officers are reading this........your aged hippie jerk store clerk can be found at West Lebanon, New Hampshire.

August 29 2011 at 5:45 PM Report abuse +5 rate up rate down Reply