Hopefully all the people who thought the world was coming to an end have found good counseling while the rest of us get on with our business. This is not to make light of those that are struggling to find employment, or trying to rebuild their retirement portfolios -- this is a brutal economy indeed.The most important thing, though, is that the stock market has improved recently, "bear rally" or not, because it has allowed investors to see that the market can go up as well as down. The most reliable prediction for the future of the stock market has always been "it will fluctuate".
My favorite motto comes from my time as a Cub Scout: be prepared. If you do not have a watchlist then you are not prepared. Yesterday I started this conversation with Serious Money: Keep your eyes on UPS and FDX.
Today I continue by pointing investors in the direction of The Home Depot, Inc. (NYSE: HD) and Lowe's Companies, Inc. (NYSE: LOW) that belong on your watch list. Yes they compete with each other but there is nothing wrong with owning both. Like yesterday's thoughts these are meant for long term positions, not for traders who look for greater volatility and have the time to follow their positions on a daily basis.
For starters both companies have been hurt directly by the collapsed housing market and drastic reduction in general construction along with consumers cutting back on spending. Both companies are well off there 52 week highs but have recovered some from their low points. The following list has some important comparative metrics as of yesterday's close:
Dividend Yield: Home Depot: 3.42%, Lowe's Co. 1.61 -- advantage HD.
Price-to-earnings: Home Depot: 17.18, Lowe's Co. 14.44 -- advantage LOW.
Price-to-sales: Home Depot: 0.54, Lowe's Co. 0.66 -- advantage HD.
Price-to-book: Home Depot: 2.05, Lowe's Co. 1.49 -- advantage LOW.
Price-to-cashflow:: Home Depot: 9.24, Lowe's Co. 7.42 -- advantage LOW.
Return on Invested Capital: Home Depot: 9.24, Lowe's Co. 8.83 -- advantage HD.
I looked at the return-on-equity, which was the same, and long term debt, which is not large enough to be a factor for either company.
As you can see the companies each have their merits. The two things that stand out are Home Depot's higher yield and Lowe's lower book value. Lowe's also has a higher growth trajectory as it is the smaller company. Both companies will shine in an improving or even a stabilized economy, with limited competition except each other.
Both companies are worthy of being on your watch list. However, I would make a distinction depending on your own situation if you want to only own one. For those that are older living on fixed income or buying the stock in a tax advantaged account, Home Depot is probably preferable based on the yield. Absent those considerations Lowe's is likely to see greater growth for those with a longer time horizon.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I do not own shares of HD or LOW but I do have open options on both.
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Reader Comments (Page 1 of 1)
5-14-2009 @ 8:25PM
william lindblad said...
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Since I shop at both in my neck of the woods, I can tell you this.
All winter at 4 different stores, 2 of which are even in a different State, traffic was light. Many times the employed outnumbered the shoppers. Both are doing serious discounting and I do see some pick up in traffic at the one I use most.
They both have a lot of competition for discounters with low overhead, you know, like in an old beat up building. Example:
3" pine crown runs about 1.60 a linear ft in the big knowns. I like hardwood and chose maple @ .89 a linear. They don't sell this, but they do oak - which is about 2.50. Where I bought they sell all - same price.