American Muslim or No, Lowes Could be Growth Story

Crista Huff
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Posted: Dec 24, 2011 12:01 AM

A December 11, 2011 news report, Lowe’s pulls ads from TLC’s “All American Muslim”, says, “Lowe’s has pulled its advertising from the reality TV show ‘All-American Muslim,’ which the retail store called a ‘lightning rod.’  ’All-American Muslim’ is an eight-part series that follows five Muslim families living in Dearborn, Michigan.”  

The controversy is that close to 100% of worldwide terrorists in recent decades are Muslims, and that the general population does not feel safe around Muslims, and is fearful of the radical Islamic agenda.  Muslims make up less than 1% of the American population.

Americans can ponder their feelings about Muslims and Islam, and Islam’s stated goal of subjugation or death to all non-Muslims. Readers probably know how I feel.   

But let’s get past the holy hype look at Lowes Companies from an investor’s point of view, because companies in the news are always worthy of looking at it you are trader precisely because they are in the news.  

Lowe's Companies Stock Chart

Lowe's Companies Stock Chart by YCharts

Lowes Companies Inc. (LOW $24.63) is a home improvement retailer with over 1700 stores in the U.S., and is actively expanding into Canada, Mexico and Australia.

Lowes is a large-cap growth stock, with 2011 revenues of $48 billion.  Standard & Poor’s sees “ample opportunities for retail growth both domestically and abroad.  We believe the housing market will remain under pressure throughout much of the year, and we continue to project weak consumer spending, particularly on big-ticket home remodeling projects.” — Standard & Poor’s Research, Nov. 17, 2011

Analysts project earnings per share (EPS) to grow 12%, 11% and 17% for fiscal years 2012 through 2014.  However, annual revenues have been stagnant for quite a few years.

Lowes plans to accomplish this projected earnings growth largely through improvements in technology, ecommerce and merchandising.  ”We were impressed with the amount of technology we saw from Lowe’s management.  While some technology applications are similar to other competitors and other store technology gets up to date, Mylowes.com sounds differentiated (through a very easy way to keep track of purchases and further customize) and appears to have gained traction (with 2 million customers signed up only 48 days after launch).” — Citi Investment Research and Analysis, Dec. 5, 2011

Lowes’ stock has a 2012 PE of 15.3.  The ten-year PE range has been between 11 and 38.

The stock dividend of $0.56 per year yields 2.27%.  Institutional ownership is 74% and the long-term debt to capitalization ratio is 26%.

These numbers are attractive and, other than the stagnant annual revenues, do not wave any warning flags to investors.

Lowes’ stock climbed to the $34/$35 area and bounced around there for a while in 2005 through 2007, then fell as low as $13 after the 2008 Financial Meltdown.  Since that time, the stock has largely traded up and down in the $19 – $27 area.  Watch for the stock to reach $27 in the short-term, and probably trade $22-$27 thereafter.

This stock will most likely appeal to traders who buy at $22, and growth stock investors who ignore the stagnant revenues in favor of the projected earnings growth.

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On Oct. 30, 2011, I recommended buying Caterpillar (CAT), saying “A patient investor might be rewarded with a purchase at $85…”  Since that time, the stock has fallen approximately ten dollars per share and gotten close to $85.  Review the article and see if Caterpillar should be on your buy list.

On Nov. 27, 2011, I recommended buying Vistaprint (VPRT) under $32.  It immediately rose to $34, and has now bounced back down to $32 again.  Review the article and see if Vistaprint is the right stock for you.

On Nov. 30, 2011, I wrote about St. Jude Medical (STJ).  It’s a risky stock due to price volatility, and it has dropped down near the bottom of the trading range.  Traders and aggressive growth investors would do well to review St. Jude right now for possible purchase.

Other stocks that I recently covered, which have dipped to support levels,  include Coach Inc. (COH) and Williams Companies (WMB).

On October 25, I wrote about Amazon (AMZN) at $237.61, and I recommended selling the stock.  The current price is $183.07.  I would recommend that anyone who thinks they want to buy Amazon at this great low price should exert caution.  It is possible that the stock will remain low for quite some time.  Direct your attention to stocks with stronger charts, such as the stocks listed above.

Happy investing!

Crista Huff, Goodfellow, LLC