Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

The Home Depot, Inc. (HD), UnitedHealth Group Inc. (UNH): Why Don’t You Love This Dow Stock?

The Home Depot, Inc. (NYSE:HD)The Motley Fool’s CAPS system grades stocks based on many factors, but the most important ingredient is their ratings from common investors like you and me. A stock with a perfect five stars out of five is likely to have plenty of investor love behind it, combined with reasonable valuations. This magic formula helps CAPS players keep tabs on their favorite stocks, crowd-sourcing insight and wisdom from Fools on the street. It’s one way for Fools to moneyball their portfolios.

Twenty-four of the 30 stocks in the Dow Jones Industrial Average enjoy above-average CAPS scores of four stars or more. That’s reasonable, because the Dow is meant to represent the best and brightest of American business. Moreover, an astounding 29 out of 30 tickers enjoy thumbs-up CAPScalls from more than 87% of all CAPS players who have rated them.

So who’s the odd Dow stock out? That would be home improvement retailer The Home Depot, Inc. (NYSE:HD), with a three-star grade and an approval rating of just 79%.

The Home Depot, Inc. (NYSE:HD)’s unloved status might come as a surprise. After all, The Home Depot, Inc. (NYSE:HD) shares have soundly beaten their Dow peers over the last year with a massive 60% dividend-adjusted gain. That’s the fourth-largest 52-week boost on the index, behind three high-profile turnaround stories.

Zoom out to a five-year perspective, and The Home Depot, Inc. (NYSE:HD) becomes the Dow stock to beat with a 288% gain. That’s miles ahead of second-strongest performer UnitedHealth Group Inc. (NYSE:UNH), which wasn’t even a Dow member when its 182% run started.

As it turns out, that strong share-price gain is one of the main reasons why CAPS players don’t love The Home Depot, Inc. (NYSE:HD) right now. Four of the last five bearish CAPScalls on this stock that offer an explanation fall back on overvalued shares.

“[Too] fast of a run up based on speculation of housing recovery,” says all-star CAPS player dcarrithers. Another all-star known as alphadogg keeps it short and sweet: “overvalued.” CMPSvictor concedes that The Home Depot, Inc. (NYSE:HD) is a “solid firm with enduring competitive advantages,” but still gives the stock a thumbs-down rating due to overheated share prices.

For what it’s worth, home improvement rival Lowe’s Companies, Inc. (NYSE:LOW) enjoys about the same P/E ratio as Home Depot. But its CAPS score adds a fourth star, and 88% of CAPS players with an opinion like that stock today. The home improvement retail sector doesn’t seem to be out of favor with CAPS players.

HD Total Return Price Chart

HD Total Return Price data by YCharts.

Keep in mind that UnitedHealth Group Inc. (NYSE:UNH) also enjoys a four-star CAPS rating despite its top-shelf five-year run. In fact, this ticker often flirts with the perfect five-star score. Rapid price gains clearly don’t bar stocks from high CAPS scores with an iron fist.

It seems obvious, then, that many CAPS players give Home Depot a thumbs-down score for reasons not related to valuation or sector strength. Home Depot does fail several of the health checks that fellow Fool Alex Planes recently put it through, including important ones like strong cash flows and reasonable debt-to-equity trends.

The article Why Don’t You Love This Dow Stock? originally appeared on and is written by Anders Bylund.

Fool contributor Anders Bylund holds no position in any company mentioned. Check out Anders’ bio and holdings or follow him on Twitter and Google+. Motley Fool newsletter services have recommended buying shares of Home Depot and UnitedHealth Group.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.