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: