Home Depot or Lowe’s – The Better Recovery Play?

It looks as if the housing market is about to transition from simply surviving to kinda' thriving.

It's a theme Jim Cramer has been tracking for quite some time on Mad Money. And he believes catalysts are quickly falling inline that bode well for the bulls.

"We're on track to build a million new homes this year, up huge from 2012," Cramer said. "Also mortgage rates remain low and in many areas buying a house is cheaper than renting." And Cramer added new reports suggest speculators are coming back to the residential real estate market.

Add up all the positives and "I think were in the early innings of a multi-year resurgence," Cramer said.

That kind of so-called macro trend typically invokes a widely held investment idea – that is, a rising tide lifts all boats.

However that may not be the case for investors trying to decide between Home Depot and Lowe's, said Cramer. That is, the renaissance in housing may not elevate both stocks by the same amount.

"With that kind of backdrop, you'd expect Lowe's and Home Depot to both be able to deliver earnings that knock it out of the park. However, only Home Depot delivered a spectacular quarter, by contrast Lowe's somehow still managed to disappoint investors when it reported on Monday," said Cramer.

That may come as a surprise to many investors who following the sector – after all, the headline numbers for both stores were better than expected Cramer said.

However, he feels the more important metrics tell a vastly different story.

Home Depot Lowes split
Getty Images (L) & Wikipedia (R)

"At Lowe's, same store sales were up 1.9% which is not bad. But Home Depot posted a 7% same store sales gain, when the Street was only looking for 4%. Not only is that a great number, it's their best since 2004," Cramer said.

As a result, the gap between Lowe's and Home Depot on this vital key metric is the widest it's been in more than 13 years, at 520 basis points.

"When Home Depot is racking up 7% comps, while Lowe's can't even break 2%, you know that these companies are not in the same boat," Cramer said.

And the divergence doesn't stop there.

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"Home Depot's sales per square foot came in at $318, up 13.3% from the bottom. At Lowe's, the sales per square foot are much lower, at $256.52, up only 3.2% from the bottom."

"Plus, even though Home Depot's gross margin—what they make after the cost of sales— shrank by 6 basis points, at 34.9% it was still a good 60 basis points higher than Lowe's," Cramer added.

So, how is it that Home Depot was able to do so much better than Lowe's?

"One word," said Cramer, execution. "Under the leadership of CEO Frank Blake, Home Depot is simply a much better run company than Lowe's."

In addition, Cramer sees other catalysts that favor Home Depot such as better locations, a more aggressive buy back program and he likes the dividend. "Home Depot just introduced a 34% dividend boost, the fourth dividend hike in four years, bringing the yield up to 2.25%, that much better than the 1.6% yield you get from Lowe's."

All told, Cramer said the better stock is Home Depot - handS down.

"To me, these two earnings reports are the clearest evidence yet for why you need to stick with the best of breed Home Depot and avoid Lowe's," he said. "I prefer the stock of Home Depot any day of the week."

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