Lowe's Lumbers as Housing Slows

Lowe's said its comps rose 3.3% for its second quarter, but the company said they would be flat to up just 2% for the third quarter. The company also guided to third-quarter total sales growth of 11%, shy of the 13% Thomson Financial target.

Lowe's EPS guidance of 45 to 48 cents a share for the current quarter is in line with the 46-cent Wall Street estimate.

"Earnings and sales growth is still in the double digits," says Johnson. "It's still solid, and still outperforming the rest of the economy, but there's a general softening taking place."

Both Lowe's and Home Depot said they intend to make larger investments in their businesses as the market slows in order to take market share from rivals and position themselves for the next upswing. Lowe's plans to open 155 stores in 2006, reflecting total square footage growth of approximately 12%.

Lowe's is currently trading at roughly 12 times analysts' estimates through 2007, while Home Depot's shares are trading at 10 times its own estimates for the period.

"Both these stocks have been beaten down pretty well, and you could do worse than buy either of these stocks at these prices," says Johnson, owns shares in both retailers). "People who are astute investors look at the market's overreactions to day-to-day news like this as buying opportunities. When you can buy companies of this quality at these kind of valuation levels, we view that as a great buying opportunity."