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The recent departure of The Home Depot, Inc. (NYSE:HD) CEO Robert Nardelli has to be one of the more dramatic resignations in recent memory. Then, in the beginning of February, two more executives, a high-level human resources exec and the general counsel, both of whom were close to Nardelli, announced they, too, would be leaving the company. These changes could be good for HD and might encourage investors to jump in, but I'd still stay away from this company for now.

Last May, when HD was at $37.70, I predicted the stock would drop, and soon after the price started dipping, eventually reaching as low as $32.75 after trading near $45 in April. My objections to HD were its terrible customer service -- I can never find anyone to help me when I shop there, and everyone I know has had the same problem -- and the fact that the slowing housing market would mean lesser demand for HD's wares. The third quarter was indeed a tough one for The Home Depot, with profits dropping 3%. The fourth quarter results aren't in yet, but the stock has regained some ground since last autumn and is trading just above $40.

I don't think Home Depot is going to get much higher, and a poor fourth quarter could send it down below $40. Mortgage rates jumped again this year, and they are now at their highest since October; with the economy still growing steadily, it doesn't seem likely we'll see any dip in rates for a little while. The housing bubble may pick up again, but high mortgage rates will dampen growth, and I don't think the housing market will grow in any serious way that will really help Home Depot. If you really must buy a home-retailer, I'd go with Lowe's Companies, Inc. (NYSE:LOW). It's simply a better run store, and while it's smaller, I think it's going to see superior growth to The Home Depot. Lowe's also had a rough third quarter, but its stock is on the rise. It split in July 2006, and then had a rough August, but its stock has gained about 33% compared to HD's 25% since September.

Type of stock: The largest home repair retailer in the country, which has just undergone major personnel shifts, but will continue to struggle with a soft housing market.

Price Target: During 2007, I don't think HD is going to grow much above $40 unless the housing market takes off. If you see mortgage rates drop or see the real estate market recovering, you might want to take a chance on this, but even then I think Lowe's is the better bet.

LOW vs. HD, 1-yr chart:

low vs. hd

Source: Lowe's: Expect Superior Growth vs. Home Depot