Trading Home Improvement Giants Home Depot, Lowe’s Before Earnings

Tickers in this article: HD LOW

NEW YORK (TheStreet) -- Unusual weather in the U.S. in 2014 has increased spending for home repairs. There are two giants in this segment of the retail-wholesale sector, and they report quarterly earnings Tuesday and Wednesday.

Dow Jones Industrial Average component Home Depot ($83.69) plans to report results before the opening bell on Tuesday, and analysts expect the company to report earnings per share of $1.45. The stock set a new all-time intraday high at $84.09 on Friday, which was a gain of just 2.1% year to date. Even so, the stock has outperformed the Dow Jones Industrial Average, which has a year-to-date gain of just 0.5%. (Contributor Richard Saintvilius has called this the best bargain stock in the retail sector.)

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Home Depot is the larger of the two companies with 365,000 employees and 2,263 store locations, most of which are in the U.S. It has a market cap of $114.5 billion, a price-to-earnings ratio of 20 based on 12-month trailing earnings and a dividend yield of 2.3%.

Lowe's plans to report before the opening bell on Wednesday, and analysts expect the company to report EPS of $1.02. Lowe's set its all-time high at $52.08 on Nov. 15, 2013 but knocked on the door of that high on Friday, trading as high as $51.19, which marked a gain of 3.3% year to date, slightly ahead of Home Depot.

Lowe's has 167,000 employees and 1,836 store locations, most of them in the U.S. The company has a market cap of $50.9 billion, a 12-month trailing P/E of 21 and a dividend yield of 1.8%.

Both stocks lag the S&P 500, which has a gain of 5.8% year to date.

Where I live in Pasco County, Fla., the nearest Home Depot or Lowe's is 10 to15 miles away. That will soon change as Lowe's is building a new store five miles away on State Road 54, just off Highway 41.

Let's compare the weekly charts of the two home improvement companies.

Courtesy of MetaStock Xenith

Home Depot ($83.69) has a positive weekly chart with its five-week modified moving average at $81.20. The huge rally for the stock began with a test of its 200-week simple moving average when it was $28.79 two years ago. I consider the 200-week SMA as the long-term "reversion to the mean," which is now $57.72.

Investors looking to buy Home Depot stock should consider entering good-'til-canceled limit orders to buy weakness to semiannual and monthly value levels at $80.84 and $80.29, respectively.

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Investors looking to book profits should consider entering good-'til-canceled limit orders to sell strength to semiannual and quarterly risky levels at $93.55 and $95.40, respectively.