Anything related to the word "housing" looks pretty ugly right now, as the recent rotten homebuilder sentiment data attests. In this environment, even the big names in home improvement aren't safe havens.
Both retailers have floated that perennial favorite, the "bad weather" excuse, as a culprit for the lackluster quarterly sales. Even so, the ongoing problems in the broader housing market make Lowe's and Home Depot logical stocks to avoid.
Homebuyer tax credits were one of the few incentives to buy a home in recent years. Once those government-sponsored incentives expired, little other rational incentive existed, especially when prices have continued to depreciate in many markets. Clearly, this macro view doesn't suggest surging demand for home-improvement supplies, either.
Plus, when folks are spending an arm and a leg at the gas pump and the grocery store, dropping a ton of cash on home improvement probably isn't high on too many to-do lists.
In this confused environment, I'd avoid homebuilder stocks like Hovnanian
Furthermore, Lowe's trades at about 18 times trailing earnings, and Home Depot at 19 times earnings. Neither one looks like a compelling value given the ugly macro climate. If you don't mind flagging sales, Wal-Mart's
Should we take a chance on Home Depot and Lowe's, or wait until the housing data's better? Let me know in the comments box below.
Motley Fool newsletter services have recommended Wal-Mart, Home Depot, and Lowe's, and recommended creating a diagonal call position in Wal-Mart and writing covered calls in Lowe's. The Motley Fool owns shares of Wal-Mart. Try any of our Foolish newsletter services free for 30 days.