The Home Depot, Inc. (HD), Lowe’s Companies, Inc. (LOW), Sears Holdings Corporation (SHLD): These Home Improvement Retailers Are in High-Growth Mode

A promising future for the best-in-breed home improvement retailers

The improvements in the housing market, as impressive as they are, still look to be in the beginning stages. Economic data rolls in seemingly every day that signals continued strength in the housing market going forward.  And, while interest rates are higher than where they were a few months ago, home affordability still remains near historically high levels.

Home prices are recovering in many cities, evidenced by findings from the National Association of Realtors stating home prices rose in 87% of U.S. cities in the second quarter, but still remain well below pre-recession levels.

Furthermore, the gradually improving unemployment rate means more money in consumers’ pockets for home repairs and renovations, meaning business conditions for Home Depot and Lowe’s should remain firm this year.

As a result, the two major home improvement chains, Home Depot and Lowe’s Companies, Inc. (NYSE:LOW), both look like good bets based on their valuable brands and history of strong execution.

It’s true that both stocks are far from being bargains. After all, both Home Depot and Lowe’s trade for at least 24 times trailing earnings and 20 times forward earnings. These are healthy premiums to the broader market. The S&P 500 trades for a P/E multiple in the high teens.

In addition, neither Home Depot nor Lowe’s pays a market-beating dividend. Each stock yields between 1.5% to 2%, which is less than the 2.2% the broader market pays.

However, neither stock should be considered an income play. These are growth stories, and on that front, there’s little for investors to worry about.

Bottom line: Stick with Home Depot and Lowe’s

While Sears Holdings Corporation (NASDAQ:SHLD) continues to struggle, it becomes apparent that not all home improvement retailers are capitalizing on the improving housing market.  As a result, it’s imperative for investors to focus their attention on the clear winners in the space.

Both The Home Depot, Inc. (NYSE:HD) and Lowe’s are growing strongly, a trend that should continue due to the accelerating momentum of the housing market and broader economy. Therefore, investors shouldn’t worry about their valuations, and continue to hold both stocks with confidence.

The article These Home Improvement Retailers Are in High-Growth Mode originally appeared on Fool.com and is written by Robert Ciura.

Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Home Depot and Lowe’s.

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