In times of market turmoil, it is more important than ever to be very selective when it comes to choosing investments. Regardless of what is going on in Washington, a company like Home Depot (HD -0.31%) will continue to thrive and potentially provide substantial returns to its investors. It has pulled back about 6.75% from its 52-week high and could push toward fresh highs once a debt ceiling deal is reached.

The men in orange
Home Depot is the largest home improvement specialty retailer in the world. It currently operates 2,258 locations in the United States, Puerto Rico, U.S. Virgin Islands, Canada, Mexico, and Guam. The company was founded in 1978, went public in 1984, and has been a part of the Dow Jones Industrial Average since 1999.

On Aug. 20, Home Depot reported second quarter earnings that exceeded analyst expectations on both the top and bottom lines:

  • Earnings per share of $1.24 vs. expectations of $1.20
  • Revenue of $22.52 billion vs. expectations of $21.72 billion
  • U.S. comparable store sales rose 11.4%
  • Raised 2013 full-year earnings expectations
Earnings increased an incredible 22.8% as net sales rose 9.5% year over year. Management credited the strong results to increased sales in its seasonal categories, the continued rebound in the housing market, and its ongoing strength in core product categories. These results allowed the company to raise its full-year guidance; it now expects earnings to increase approximately 20% to $3.60, sales to increase 4.5% to $78.12 billion, and comparable store sales to increase 6% for the year.
 
Overall, it was a flawless quarter and the stock reacted accordingly by running higher, but it began its decline the same day and has risen just 2% since. This was not the reaction I expected, but it only adds to the fact that Home Depot is a value play at current levels. 

Third won't be the worst
Home Depot is set to report third quarter earnings for fiscal 2014 on November 19. Here are the current consensus analyst expectations, according to Bloomberg Businessweek:

Statistic 3Q 2013 Exp. 3Q 2012 Exp. Growth
Earnings Per Share $0.90 $0.74 21.6%
Revenue $19.1 billion $18.1 billion 5.5%

I believe the current estimates are much too low after the blowout second quarter and the momentum the company has had over the last year; it exceeded all expectations in fiscal 2013 and in both quarters to-date in fiscal 2014. Keep an eye on same-store sales growth and do not be shocked if full-year estimates are raised once again.

The men in blue
Lowe's (LOW -0.14%) is the largest competitor to Home Depot, with 1,758 home improvement stores in the United States, Canada, and Mexico. Here is a comparison of the companies' key statistics:

Company Home Depot Lowe's
Market Cap  $108.9 billion  $50.5 billion
P/E  22.50  24.61
Forward P/E  17.40  18.13
Gross Margin  34.28%  34.35%
Global Comp. Store Sales  +10.7%  +9.6%
Dividend Yield  2.05%  1.50%
YTD Performance  +19.5%  +32.4%

(Source for key statistics: Yahoo! Finance. Global comparable store sales are year-over-year from latest quarterly report)

This competition used to be heated, but Home Depot has outpaced Lowe's same-store growth for 16 consecutive quarters, widening the gap by a very large margin. On Aug. 21, Lowe's had a very impressive quarter, in which earnings rose 37.5%, net sales rose 10.3%, and margins expanded. However, I want to see this kind of performance on a consistent basis before considering Lowe's for an investment. Home Depot is the "best of breed" in the home improvement industry and it is exactly the kind of company we should seek in an uncertain market environment.


The Foolish bottom line
Home Depot is a top value play at current levels and has earnings momentum on its side. It is actively repurchasing its shares and has a healthy dividend, so value is constantly being returned to shareholders. The continued uncertainty in the market should provide plenty of entry points into this name, so pick your price and watch it closely.