• 18 Dec
    Looking for a smart play in the market right now? Check out TAP

    Looking for a smart play in the market right now? Check out TAP

    As the stock market moves deeper into correction territory and challenges the lowest support levels it reached earlier this year, a natural question becomes what a smart investor should do with your money. Do you take everything out of the market and sit on the sidelines until things start to settle down again? The ultra-conservative approach would be to do exactly that. More →

  • 17 Dec
    Is WHR a good buy right now?

    Is WHR a good buy right now?

    With the stock market pushing down to test levels near its lowest points from earlier this year, a lot of investors are on edge right now. The market is back into correction territory, and has pushed below its more recent low point around the end of October. A continued decline will not only steepen the severity of the correction, but also increase speculation, uncertainty and risk that the market will finally, after a practically uninterrupted bullish run of more than nine years, move into legitimate bear market territory. More →

  • 14 Dec
    Why the S&P 500 could be past the “last gasp” stage of a long bull market

    Why the S&P 500 could be past the “last gasp” stage of a long bull market

    2018 has marked a very interesting year for the stock market. After a year of practically uninterrupted increases in stock prices in 2017, where every small dip in price provided a new opportunity to jump back in and made the market look like easy money, 2018 has been anything but predictable. Geopolitical concerns like Brexit, trade tensions between the U.S. and its largest trading partners, and speculation about the sustainability of historically low interest rates and global economic health have all had their day in court. More →

  • 13 Dec
    Is LOW cheap enough yet?

    Is LOW cheap enough yet?

    Over the course of this last quarter of the calendar year, one of the areas of the market that has come under the most pressure is the Consumer Discretionary sector. From April until September, this sector was one of the market leaders, as a generally healthy economy drove retail stocks across a range of industries like Kohl’s (KSS), Target Stores (TGT), Home Depot (HD), and Lowe’s Companies, Inc. (LOW) to all-time high levels; but as anxiety about global tariffs combined with questions about whether the economy was finally starting to reach a peak, this sector dropped well into correction territory and is down a little over 12% since the beginning of September.

    Home improvement stocks like HD and LOW seem to be an interesting economic barometer, especially as it relates to consumer-level impact. A healthy economy generally means increasing home ownership, both for new homes as well as existing, older homes. That is usually a good thing for this industry, since homeowners naturally have to spend money to maintain their homes. Another element that plays a role, of course is interest rates.  Low rates not only motivate higher borrowing for mortgages, but also spur increased home improvement sales as consumers spend and borrow money to upgrade and improve existing homes.

    The fact rates have been increasing isn’t a positive for this industry, and in fact is one of the things that I believe have played a role in pushing HD and LOW into bear market territory over the last three months; but recent economic data seems to be giving the market reason to believe that the Fed may slow the pace of interest rate increases. On a historical basis, rates remain relative modest, which means a slower pace, or even a pause in rates could give this industry a boost in 2019. LOW is an interesting company, in the midst of a corporate transformation, with a new management team that is mapping out a new strategy that includes selling non-core businesses, lowering costs and improved store execution. They are down more than 20% over the quarter, which means that the stock is underperforming versus the broader sector and is in bear market territory. There are some interesting fundamental qualities that I think make LOW worth watching; but I’m not sure the long-term outlook for the stock is quite as positive as I would like to see.



    Fundamental and Value Profile

    Lowe’s Companies, Inc. (Lowe’s) is a home improvement company. The Company operates approximately 2,370 home improvement and hardware stores. The Company offers a range of products for maintenance, repair, remodeling and decorating. The Company offers home improvement products in categories, including Lumber and Building Materials; Tools and Hardware; Appliances; Fashion Fixtures; Rough Plumbing and Electrical; Lawn and Garden; Seasonal and Outdoor Living; Paint; Flooring; Millwork, and Kitchens. The Company also supports the communities that focus on K-12 public education and community improvement projects. The Company serves its customers in the United States, Canada and Mexico. LOW’s current market cap is $75.3 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings declined about -1%, while sales grew almost 4%. The last quarter didn’t improve the earnings picture, since earnings declined almost -50%, while sales dropped close to -17%. The company operates with a very narrow margin profile that seems to be getting even narrower; Net Income versus Revenues over both the past year was 5.18%, but decline in the most recent quarter at about 3.6%.
    • Free Cash Flow: LOW’s free cash flow is one of most impressive aspects of their fundamental profile, at $5.3 billion. That translates to a Free Cash Flow Yield of 7.2%. Another positive is the fact Free Cash Flow has increased significantly since the beginning of the year, when it was about $4 billion.
    • Debt to Equity: LOW has a debt/equity ratio of 2.68 and makes them one of the most highly leveraged companies in their industry. While their balance sheet indicates operating profits are sufficient to service their debt, liquidity is a question mark; cash is a little over $1.8 billion while long-term debt is almost $14.5 billion.
    • Dividend: LOW pays an annual dividend of $1.92 per share, which translates to a yield of about 2.1%.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for LOW is only $6.72, and which translates to a Price/Book ratio of 13.76 at the stock’s current price. Their historical average Price/Book ratio is 10.36, which means that even with the stock down 20% since September, it remains almost 25% overvalued right now. The fact is that based on Price/Book ratio, the stock can’t really be considered a good value until it drops to about $55. The last time the stock was in that price range was October of 2014.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: LOW isn’t far from the 52-week lows it established earlier this year in the $81 to $83 price range. The momentum of the stock’s downward trend right now means that the stock would have to break above resistance at $95 to mark any kind of consolidation range right now, with a break above $100 a good technical reference for an actual bullish trend reversal. If the stock breaks below its current pivot support around $86, look for strong consolidation in the $81 to $83 range. A drop below that level would mean the downward trend will likely continue for the foreseeable future, with the next most likely support level around $75. 
    • Near-term Keys: A push above $95 could set up an interesting bullish swing trade using call options, with a near-term target price at around $100. If the stock breaks its current support, you might consider shorting the stock or buying put options with an eye on the stock’s 52-week low around $81 as an exit point for that trade. The fact is that the stock’s value proposition right now just isn’t interesting enough to justify any kind of long-term position on this company. They are interesting potential turnaround story, it is true; but I would prefer to wait to see new management’s strategy paying off in the form of improving general fundamental strength, lower debt levels, and improving Book Value.


  • 12 Dec
    ADM is an interesting defensive play – is it a good value?

    ADM is an interesting defensive play – is it a good value?

    Bearish pressures for the past few days have pushed the market back down near to its 52-week lows. It seems like each time the market tests its major support, more and more talk starts to be about the increasing likelihood that the longest bull market in recorded history is finally going to end. So far this year, each time that’s happened the market has managed to stage yet another rally; but given the extremely extended state the market remains in, even being in corrective territory right now does seem to suggest that support will probably only hold for long. More →

  • 11 Dec
    Is FEYE’s upward trend sustainable?

    Is FEYE’s upward trend sustainable?

    Politics have been putting more pressure than normal on the stock market of late; after the Trump administration announced a preliminary agreement with China to halt imposition of any new tariffs at the beginning of this month following the G20 summit in Buenos Aires, the market seemed poised to rise a new wave of bullish momentum and sentiment. More →

  • 10 Dec
    Transports are down 16% since September – but that doesn’t make SKYW a good bargain

    Transports are down 16% since September – but that doesn’t make SKYW a good bargain

    The market hasn’t been kind to the Transportation sector since the end of the third quarter of the year. As measured by the S&P Transportation SPDR ETF (XTN), the sector declined from its 52-week highs at the beginning of September nearly 20% by Halloween before staging a temporary rally through November. Since the beginning of the month, however the sector has dropped back near to its yearly lows. More →

  • 07 Dec
    Is TGT a good value play for the holidays?

    Is TGT a good value play for the holidays?

    The numbers from what has come to be accepted as the official beginning of the holiday are in. This year’s Black Friday and Cyber Monday sales figures hit all-time records despite an overall decrease in foot traffic at brick and mortar stores. Online sales on Black Friday actually began on Thanksgiving Day, and by the end of Friday had reached a nearly 24% increase over the previous year at $6.22 billion. Cyber Monday was even bigger, with a total of $7.9 billion. In all, the numbers seem to point to a healthy holiday shopping season. More →

  • 06 Dec
    Did John Bogle really criticize his own creation?

    Did John Bogle really criticize his own creation?

    In an article for the Wall Street Journal that was excerpted from his new book, “Stay the Course: The Story of Vanguard and the Index Revolution,” John Bogle, the founder of The Vanguard Group and creator of the first index mutual fund asked an interesting question: “What happens if it (indexing) becomes too successful for its own good?” More →

  • 05 Dec
    Timing + Value = Opportunity with HUN

    Timing + Value = Opportunity with HUN

    Once the stock market bottomed at the end of October, the major market indices all rallied. Some of that rally lost steam yesterday and pushed all three major indices into negative territory for the last 30 days; but one of the sectors that really seems to have benefitted is the Materials sector. At the beginning of the week, the Trump administration announced it had come to an agreement with China to pause the imposition of any new tariffs on either side of the ocean to open the door, hopefully to more constructive discussions that lead to a useful compromise. More →

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