My favourite of these two buy rated stocks
Share prices at this pair have fallen sharply in the past month, but analyst Rodney Hobson believes the decline represents a buying opportunity. There’s also an update on Tesla.
8th October 2025 08:36
by Rodney Hobson from interactive investor
Experts are divided over whether The Home Depot Inc (NYSE:HD) or Lowe's Companies Inc (NYSE:LOW)represents the best value in the American home improvements sector. While either company looks to be a decent investment, the sharp fall in Lowe’s shares is looking increasingly like a buying opportunity.
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The sector has certainly been squeezed over the past couple of years as higher interest rates deterred homeowners from making improvements. However, the easing of US interest rates this year, with the prospect of another reduction soon, has changed the picture considerably.
As the largest in the sector, Home Depot has the advantage of stronger purchasing power in the supply chain. It has over 2,300 stores against around 1,750 for Lowe’s, so its name is more widely spread among the community. It sells more per store as well, with annual sales of around $160 billion, almost double the Lowe’s total of $84 billion. The gap is growing slightly, as most recent figures showed Home Depot stores increasing same store sales by 1.4%, while those at Lowe’s were up 1.1%.
Home Depot has also moved faster to lure professional contractors into its stores by providing a dedicated sales force and a loyalty programme to support them. This is important, because professionals not only spend more than the amateur punter, but they provide much more consistent repeat business.
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Last year, Home Depot acquired SRS, which distributes roofing products, landscape supplies and swimming pool equipment and this year it has agreed to take over GMS, a distributor of specialty building products such as walls, ceilings and steel framing.
These acquisitions will allow Home Depot to sell more materials in bulk to contractors, although this will probably squeeze margins a little – and already on gross margins Home Depot does not have the advantage.
Source: interactive investor. Past performance is not a guide to future performance.
However, Home Depot’s position as top dog is now more than reflected in a divergence of the respective share prices in recent months. Both shares are down over the past 12 months, but Lowe’s is off 8% to $387 and Home Depot’s just 2.5% to $238. Lowe’s price/earnings (PE) ratio is just under 20 while Home Depot’s is 26.5, although neither rating looks excessive by American stock market standards. The yields are 1.9% and 2.35% respectively.
One point worth noting is that Lowe’s has a new management team poached from Home Depot, so the gap in performance could narrow sharply in the near to medium term.
Source: interactive investor. Past performance is not a guide to future performance.
Hobson’s choice: I rate both shares a buy, with a slight bias at this stage towards Lowe’s for recovery. Its next results due on 19 November should show the start of a solid improvement.
Update: For as long as US President Donald Trump continues his somewhat quixotic attitude to economic matters, financial announcements across the Atlantic will continue to throw up quirks. Thus, there was a surprise 7.6% surge to nearly 500,000 in sales of Tesla Inc (NASDAQ:TSLA) cars in the July-September quarter.
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This is not part of a resurgence of Tesla, rather that Americans took note of Trump’s decision in July to end a tax credit of up to $7,500 on the purchase or lease of electric vehicles on 30 September. Tesla threw in finance deals and discounts as a further boost to sales. These are not sales wins for Tesla but simply the pulling forward of sales that would otherwise have been made in the current quarter, which are likely to show a corresponding drop. Meanwhile, Tesla sales in Europe continue to struggle with a 22.5% fall.
Tesla shares have inexplicably doubled from $220 to a peak of $460 over the past six months but are on the slide again. I still cannot see any attraction in a company under so much pressure that is owned and run by a man who is milking it for all he can get. Sell.
Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.
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