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Home Depot: More Savings, Less Doing

Stocks in this article: HDLOWWMTMCDTGT

Along similar lines, I believe Wal-Mart and even Target (TGT), though they have not operated as well as Home Depot, might present stronger stock gains. Not to mention they are both trading at much cheaper valuations -- eight and seven points lower, respectively, on their price-to-earnings ratios, when compared to Home Depot's P/E of 22. So, in the case of Home Depot, this is clearly a value judgment on the stock and less of an indictment on the company's performance.

The Street has never flinched from paying a higher multiple for Home Depot. With 11% comp growth, this is hard to argue with. But by every measurable standard, including discounted cash flow, the stock is expensive.

I'm not saying the stock won't go up at all. Nor am I foolish enough to suggest that these shares lack value. But I do believe that for the foreseeable future the trend we've seen over the past couple of months will continue -- shares of Lowe's will meaningfully outperform Home Depot.

In the meantime, as these two bitter rivals continue to battle it out, investors will get the benefit of owning two of the best yields on the market. When it's all said and done, I do expect Lowe's, which has lagged Home Depot in store-level and supply chain productivity efficiency, would have narrowed the gap. Essentially, while Home Depot becomes a safe stock to own, there will be "less doing," which is to say, the stock may not be going anywhere for a while.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a co-founder of StockSaints.com where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.

His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.

His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.

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