Trading Home Improvement Giants Home Depot, Lowe’s Before Earnings

NEW YORK (TheStreet) -- Unusual weather in the U.S. in 2014 has increased spending for home repairs. There are two giants in this segment of the retail-wholesale sector, and they report quarterly earnings Tuesday and Wednesday.

Dow Jones Industrial Average component Home Depot (HD) ($83.69) plans to report results before the opening bell on Tuesday, and analysts expect the company to report earnings per share of $1.45. The stock set a new all-time intraday high at $84.09 on Friday, which was a gain of just 2.1% year to date. Even so, the stock has outperformed the Dow Jones Industrial Average, which has a year-to-date gain of just 0.5%. (Contributor Richard Saintvilius has called this the best bargain stock in the retail sector.)

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Home Depot is the larger of the two companies with 365,000 employees and 2,263 store locations, most of which are in the U.S. It has a market cap of $114.5 billion, a price-to-earnings ratio of 20 based on 12-month trailing earnings and a dividend yield of 2.3%.

Lowe's (LOW)   plans to report before the opening bell on Wednesday, and analysts expect the company to report EPS of $1.02. Lowe's set its all-time high at $52.08 on Nov. 15, 2013 but knocked on the door of that high on Friday, trading as high as $51.19, which marked a gain of 3.3% year to date, slightly ahead of Home Depot.

Lowe's has 167,000 employees and 1,836 store locations, most of them in the U.S. The company has a market cap of $50.9 billion, a 12-month trailing P/E of 21 and a dividend yield of 1.8%.

Both stocks lag the S&P 500, which has a gain of 5.8% year to date.

Where I live in Pasco County, Fla., the nearest Home Depot or Lowe's is 10 to15 miles away. That will soon change as Lowe's is building a new store five miles away on State Road 54, just off Highway 41.

Let's compare the weekly charts of the two home improvement companies.

Courtesy of MetaStock Xenith

Home Depot ($83.69) has a positive weekly chart with its five-week modified moving average at $81.20. The huge rally for the stock began with a test of its 200-week simple moving average when it was $28.79 two years ago. I consider the 200-week SMA as the long-term "reversion to the mean," which is now $57.72.

Investors looking to buy Home Depot stock should consider entering good-'til-canceled limit orders to buy weakness to semiannual and monthly value levels at $80.84 and $80.29, respectively.

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Investors looking to book profits should consider entering good-'til-canceled limit orders to sell strength to semiannual and quarterly risky levels at $93.55 and $95.40, respectively.

Courtesy of MetaStock Xenith

Lowe's ($50.00) has a positive but overbought weekly chart with its five-week modified moving average at $48.29. The huge rally for the stock began with a breakout above its 200-week simple moving average when it was $21.76 in November 2011. I consider the 200-week SMA as the long-term "reversion to the mean," which is now $34.20.

Investors looking to buy Lowe's stock should consider entering good-'til-canceled limit orders to buy weakness to monthly and semiannual value levels at $48.46 and $42.46, respectively.

Investors looking to book profits should consider entering good-'til-canceled limit orders to sell strength to semiannual and quarterly risky levels at $51.43 and $57.35, respectively.

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

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

Richard Suttmeier is the chief market strategist at ValuEngine.com. He has been a professional in the U.S. Capital Markets since 1972, transferring his engineering skills to the trading and investment world.

Suttmeier has an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. He became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gives him the insights to be an expert on monetary policy, which he features in his newsletters, and market commentary.

Suttmeier's industry licenses include, Series 7 and Registered Principal (Series 24). He has been the Chief Market Strategist for ValuEngine.com since 2008 and often appears on financial TV.

Click here for details on Suttmeier's "Buy and Trade" investment strategy.

Richard Suttmeier can be reached at RSuttmeier@Gmail.com

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