Thursday’s Top Upgrades (and Downgrades): Visa Inc (V), The Home Depot, Inc. (HD)

Does it seem unfair to lump Home Depot and Lowe’s together in one shopping basket… and then shove that basket out into traffic? It’s not. In fact, with both stocks trading at a P/E ratio of roughly 23, both paying about a 1.6% dividend yield, both struggling under sizable debt loads, and both pegged for about 16% long-term earnings growth, it’s actually harder to tell these two stocks apart than to just lump ’em together and declare: “I’m not impressed.”

Although it’s true that if the home improvement giants succeed in hitting their numbers, and producing growth at the expected rates, they’re not dreadfully overvalued at today’s prices; neither are they cheap. When you’re already selling $50 billion (Lowe’s) or $70 billion (Home Depot) worth of goods annually, growing that number 16% a year, for five straight years, is no easy trick.

Considering the high P/E ratios that both stocks sport, I’d say the downside risk here quite simply eclipses any gains shareholders may see from trying to capitalize on a strengthening housing market. Stifel’s right to warn investors away.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Home Depot, Lowe’s, UnitedHealth Group, and Visa.

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The article Thursday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.

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