Five Best Home Improvement Retailers to Buy

#2 Home Depot Inc. (NYSE:HD)

– Investors with Long Positions (as of December 31): 62

– Aggregate Value of Investors’ Holdings (as of December 31): $3.72 Billion

The hedge fund sentiment towards Home Depot Inc. (NYSE:HD) declined in the fourth quarter of 2015, with the number of funds invested in the company dropping to 62 from 69. The value of funds’ equity investments in the company shrank to $3.72 billion from $3.94 billion quarter-on-quarter. Home Depot is the largest home improvement retailer in the world, operating 2,274 The Home Depot stores as of the end of January across the United States, including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam, Canada and Mexico. The company’s net sales for fiscal 2015 that ended January 31 totaled $88.52 billion, which increased 6.4% year-on-year. Home Depot’s fiscal 2015 total comparable store sales grew 5.6% year-over-year due to a 4.0% increase in comparable store customer transactions and a 1.6% increase in comparable store average ticket. More importantly, the company’s comparable store sales for U.S. stores increased 7.1% year-on-year. Home Depot’s fiscal 2015 diluted earnings per share totaled $5.46, up from $4.71 reported for fiscal 2014. The shares of Home Depot have advanced 14% in the past 52 weeks and trade around 18.6-times expected earnings, versus the forward P/E multiple of 19.8 for the Home Improvement Retailers sector. The company also pays out an annualized dividend of $2.76 per share, which equates to a dividend yield of 2.12%. Ken Fisher’s Fisher Asset Management is the largest equity holder of Home Depot Inc. (NYSE:HD) within our database, holding 8.47 million shares as of the end 2015.

#1 Lowe’s Companies Inc. (NYSE:LOW)

– Investors with Long Positions (as of December 31): 66

– Aggregate Value of Investors’ Holdings (as of December 31): $3.91 Billion

Lowe’s Companies Inc. (NYSE:LOW) dethroned Home Depot as the most-favored home improvement retailer in the hedge fund industry at the end of 2015. The smart money sentiment towards Lowe’s Companies increased dramatically during the December quarter, as the number of money managers with stakes in the company climbed to 66 from 56 quarter-on-quarter. Similarly, the aggregate value of those stakes increased to $3.91 billion from $3.35 billion quarter-over-quarter. Lowe’s Companies operates 1,857 home improvement and hardware stores in the United States, Canada and Mexico as of January 29. The company’s fiscal 2015 sales were $59.07 billion, which increased 5.1% year-on-year. Meanwhile, comparable sales for the U.S. home improvement business grew 5.1% year-over-year. Adjusted net earnings for fiscal 2015 were $3.08 billion, which increased 14.0% as compared to fiscal 2014. Similarly, adjusted diluted earnings per share grew 21.4% year-on-year to $3.29. More importantly, the management of Lowe’s Companies anticipates fiscal 2016 total sales to grow roughly 6%, while comparable sales are anticipated to grow 4%. The management anticipates diluted earnings per share of $4.00 for fiscal 2016 that ends February 3, 2017. The stock is priced at 16.1-times expected earnings, significantly below the forward P/E ratio for its main competitor, Home Depot, as well as the ratio for the entire industry. Ken Griffin’s Citadel Advisors LLC holds a 5.54 million-share position in Lowe’s Companies Inc. (NYSE:LOW) as of the end of December 2015.

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