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Home Depot & Lowe’s Still the Best Housing Stocks to Buy

Home Depot (HD) and Lowe’s (LOW) just reported earnings, and both blew the doors off.

This is just further proof that the Home Depot stock and Lowe’s stock rallies in 2013 will stick, and that these two home improvement retailers remain your best housing stocks to buy right now.

First, the numbers. The Home Depot earnings report showed a 17% increase in profits, and revenue was up 9.5%. It was the first time in 14 years that same-store sales saw a double-digit increase year-over-year. As for Lowe’s earnings, net income was up 26% and revenue ticked up 10%.

Admittedly, the past week has been rough for Lowe’s and Home Depot stock. HD stock is down about 6% in five trading days, and LOW is off about 4%.

But these earnings prove yet again that Home Depot and Lowe’s are the most stable investments in the housing sector.

Consider that HD stock is up 20% year-to-date in 2013, while No. 2 home improvement retailer Lowe’s is up 24%. That’s compared with declines in homebuilders, including a 2% decline in Toll Brothers (TOL), a 4% decline in D.R. Horton (DHI) and a 10% decline in PulteGroup (PHM).

More broadly, the S&P 500 is up about 16% year-to-date in 2013 to lag both Lowe’s and Home Depot stock.

There are indeed risks as consumer spending starts to cool off. Persistently high unemployment coupled with rising mortgage interest rates is bound to sap demand. And furthermore, housing starts missed Wall Street forecasts in July, and there are concerns that existing home inventories could start to finally move higher after a long stretch of declines.

None of this means housing will crash, of course, just that growth will slow or flatline. Thus it’s likely headwinds could hit some areas of the housing sector.

Lowe’s and Home Depot stock will be insulated, however. That’s because they are more involved with maintenance and upkeep than simply housing construction, and all those new homes bought in the last 18 months are going to need a steady flow of light fixtures, paint and appliances.

Speaking as a homeowner myself who purchased his first house in 2009, I can attest to the fact that your first trip to Home Depot after closing is only the beginning of your trips to the hardware store.

Earnings show that traffic to Home Depot and Lowe’s remains strong even as housing cools off, and I expect that to continue. After the recent declines in both LOW and HD stock, now might be the time to consider buying in on a dip.

Related Reading on The Home Depot and Lowe’s

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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