Even though home prices currently hover near 2009's lows, home-improvement retailers' quarterly results seemed to buck that ugly trend. Should investors hammer out a position in these stocks?
Home Depot's
Fellow home improvement rival Lowe's
But the appearance of improvement at Home Depot and Lowe's may be just a facade. After all, the housing market has been stagnating for years now; easy comparisons to yesteryear make both companies look a bit stronger than they are. Until this latest report, Home Depot hadn't posted a revenue increase since the year ended January 2007. Lowe's annual sales growth has averaged just 0.4% over the last three years, and just 2.5% over the last five years. That's not quite surprising, considering 2008's housing plunge.
Housing data doesn't look like a big growth driver for these companies going forward. Average home prices fell 4.1% in the last three months of 2010, and their plummet may not have ended yet. Robert Shiller of Case-Shiller fame predicted that home prices could fall 15% to 25% further. Although Toll Brothers
Such factors bode poorly for robust growth at Home Depot and Lowe's. Amid an ugly macroeconomic climate that doesn't portend a huge move toward upgrading houses, home improvement stocks still aren't hospitable for prudent investors.