The Home Depot, Inc. (HD), Sears Holdings Corporation (SHLD): How Investors Missed the Run in Lowe’s Companies, Inc. (LOW)

The impressive buyback plan in the first six months of 2013 suggests that The Home Depot, Inc. (NYSE:HD) might be in a financial position to outgain Lowe’s over the next year. The lower stock gains during that period and apparent better cash position make the stock more attractive, in my opinion, in comparison to Lowe’s.

Reduced buyback signaled Sears weakness

As the net buyback yield chart above showed, Sears Holdings Corporation (NASDAQ:SHLD) had to cut back a significant buyback program that signaled eventual weakness in the stock. Now Sears does compete in other sectors such as clothing that isn’t part of the business at Lowe’s or Home Depot, but it competes in some of the primary sectors of lawn equipment and appliances. The company though hasn’t benefited from the home improvement surge and the cutting of the buyback plan during 2012 was probably the first signal of impending stock weakness.

Clearly, Sears Holdings Corporation (NASDAQ:SHLD) is more of a mixture between a Target and a Lowe’s. The recent results suggest it isn’t going to benefit from a rebound in housing as originally hoped. The comp sales for second-quarter 2013 were negative and nowhere resembled the strong 10% gains of the home improvement stocks.

Bottom line

Investors not paying attention last year would’ve missed the huge net buyback yield of Lowe’s. A buyback that helped propel the stock 70% higher. Instead of focusing on home sales and economic numbers, investors could let management tell them when a stock is undervalued via a massive buyback. When a company the size of Lowe’s can repurchase 10% of the outstanding shares within a year, investors need to consider that the stock is possibly undervalued compared to the cash being generated by the company.

Now the buyback yield is shrinking at Lowe’s while Home Depot is gaining altitude just as investors are shifting into Lowe’s stock. The sell off in Home Depot presents a buying opportunity and investors should keep an eye on where the yields shift in the next quarter.

The article How Investors Missed the Run in Lowe’s originally appeared on Fool.com and is written by Mark Holder.

Fool contributor Mark Holder and Stone Fox Capital Advisors own shares of Lowe’s and Sears Holdings. The Motley Fool recommends Home Depot and Lowe’s.

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