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Is Home Depot a bargain in today's down market?

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People bargain hunting in today's market need to remember that low prices doesn't equate to value. Cheap stocks are sometimes cheap for very good reasons but if you are selective, you may be able to find some bargains.

Take Home Depot Inc. (NYSE:HD). The No. 1 home improvement chain is struggling and is in the dog house with Wall Street because of the actions of its former Chief Executive Robert Nardelli. The company said today that its earnings this year would go down and sales would be flat as it invests $2.2 billion in fixing up its stores.

When companies announce plans to invest in their businesses, traders dump the stock. But remember, Home Depot shares are already beaten up. They are down 4 percent this year, while better-liked retailers such as Target Corp. (NYSE:TGT) and Costco Wholesale Corp. (NASDAQ:COST) are each up 9 percent.

The stock is cheap. Home Depot is trading at a forward price-to-earnings ratio of about 14, compared with 16 for Target and 21 for Costco. Of course, Home Depot is being hurt by concerns about the housing market, but everyone knows that already. The new Chief Executive Frank Blake also seems to be mending fences with Wall Street.

To make money in the stock market, you have to buy low and sell high. I know that's original observation, but keep in mind that successful investors don't buy stocks that everybody likes because the good news is already factored into the price.

Anyone who buys Home Depot -- and I don't care if you do or not -- or any other low-priced stock today shouldn't expect it to become the next Google Inc. (NASDAQ:GOOG) tomorrow. Investing requires lots and lots of patience and more than a little luck.

Happy hunting everyone.

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Last updated: November 26, 2009: 04:29 PM

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