Fast-Growing Lowe's May Have Edge Over Home Depot

Meanwhile, both companies are making less money amid the housing downturn. This week, Lowe's reported an 18% year-over-year drop in quarterly profit, while Home Depot posted a 66% decline in earnings in part due to a hefty charge related to its store-cutback efforts. The stocks, however, are holding up: Home Depot shares are up nearly 5% year to date, and Lowe's shares are up 7%. The S&P 500 index is down 2% so far in 2008.

Since down markets don't last forever, each company is trying to position itself now to come out on stronger footing once real estate recovers.

When Home Depot announced at the beginning of May that it's cutting back on expansion, its shares gained 3.7% — a sign investors liked the move. But Lowe's shares notched a bigger gain that day of 4.3%, an indication the Street thinks Lowe's could benefit from fewer Home Depot stores in the future.

The companies' shares have tended to move in tandem over the years. But Home Depot is more mature and, therefore, slower growing. After finishing lower on Tuesday, Home Depot is down 11% from five years ago, while Lowe's shares are up 22%. In the past decade, Home Depot's stock is up 31% while Lowe's shares have nearly tripled in value. Last year, Home Depot shares fell 34%; Lowe's lost 29%.