(Home Depot article updated with stock price movement.)

NEW YORK (

TheStreet

) --

Home Depot

(HD) - Get Report

continues to be the top pick in the home improvement sector.

The company was upgraded by Morgan Stanley to overweight from equal weight Monday, with Morgan Stanley conveying that it is optimistic about Home Depot's outlook going forward.

"We believe that the turn in housing is real. Our Home Improvement Lead Indicator has posted three straight months of gains -- the first such increase since 2006," the bank wrote in a note.

The increase in existing home sales is also a good sign that traffic should continue to drive same-store sales in 2010. Morgan Stanley is calling for positive comparable sales by the second quarter.

Home Depot has delayed expansion plans and recently announced it will

lay off 1,000 employees

.

Morgan Stanley also said it believes there is more margin upside to the market's expectations.

TST Recommends

Last week, Goldman Sachs downgraded rival

Lowe's

(LOW) - Get Report

. The firm does see improving sales and earnings trends in the sector, but -- as with Morgan Stanley, believes

Home Depot is the way to go on the turnaround

.

Shares of Home Depot are climbing 3% to $28.83, while Lowe's is up 2.6% to $22.15.

-- Reported by Jeanine Poggi in New York.

RELATED STORIES:

>>Goldman Sachs: Home Depot Tops Lowe's

Follow TheStreet.com on

Twitter

and become a fan on

Facebook.

Copyright 2009 TheStreet.com Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.