We recently compiled a list of the 10 Best Home Appliance Stocks to Invest In. In this article, we are going to take a look at where Lowe’s Companies, Inc. (NYSE:LOW) stands against the other home appliance stocks.

The global home appliances market, estimated by Fortune Business Insights to be worth $708.15 billion in 2023, is expected to expand at a CAGR of 6.20% from $743.56 billion in 2024 to $1,203.11 billion by 2032. In terms of market share, North America accounted for 32.51% of the home appliances market in 2023.

The market is expanding more quickly due to consumer demand for energy-efficient and technologically advanced home appliances. A Parks Associates consumer survey in 2022 shows that 38% of homes own one or more smart home devices, which represents a slight 2% rise from the previous year. In 2021, about 30% of customers bought a smart home gadget, and 44% of US households wanted to do the same in 2023. Consumer interest in the expanding array of Internet-connected gadgets, such as energy management programs and smart home security systems, is still high. The user experience is further enhanced by improved mobile integration.

Parks Associates research director Chris White pointed out how customer expectations are rising and how demand for integrated smart home experiences is expanding. Out of 10,000 houses that participated in the survey, 88% had access to the Internet, 54% had a connected health device, 40% had a security system, and 56% had a smart TV. However, concerns about security and connectivity are growing among manufacturers as more devices find their way into homes and offices.

Secondly, instead of using traditional middlemen, more and more consumers are opting to purchase directly from manufacturers of household appliances. According to PWC’s June 2023 Global Consumer Insights Pulse Survey, the majority of customers (63%) report having bought products straight from a brand’s website and anticipate this percentage to rise. Another 29% of consumers state that, while they haven’t done so yet, they are thinking about going direct-to-consumer.

Another study by J.D. Power 2023 named U.S. Appliance Satisfaction Study reveals that 75% of appliance purchases occur on the first visit to the store and that nearly three-fourths (71%) of home appliance transactions take place in-store. Even with 29% of purchases made online, the majority of consumers still prefer to see the equipment in person.

Last year Christina Cooley, home intelligence lead at J.D. Power, stated:

“This year’s data shows us that 56% of home appliance shoppers are doing their research online before heading in store to purchase,” “Though price is almost always going to be the main driver of whether someone decides to purchase an appliance or not, one-third of buyers did not purchase because they were seeking specific options and features, and one-fifth indicated they couldn’t purchase, as their desired appliance wasn’t in stock.”

According to the American Customer Satisfaction Index Household Appliance and Electronics Study of 2024, with slight drops in both product and service quality, the household appliance market—which includes washers, dryers, dishwashers, refrigerators, ranges/cooktops/ovens, and over-the-range microwaves—falls 1% to an ACSI score of 80. The only appliances that have grown year over year are dishwashers and refrigerators (both up 1% to 80), with the range/oven/cooktop category seeing the largest loss, falling 4% to 79.

Jamie Rosenberg, Associate Director – Global Household and Personal Care, stated:

“The impact of inflation on the major household appliance market is both profound and complex. Many low-income consumers are delaying upgrades, but for 54% of buyers, breakdowns are the biggest purchase driver. When that happens, demand is relatively inelastic. When we add the impact of mid- to upper-income consumers who are still unleashing pent-up demand from supply constraints over the past three years, we have a market growth rate that is well above normal. Looking ahead, connected appliance innovations that create a convergence of reduced operating costs, and enhanced performance, convenience and sustainability will drive a new wave of trading up that keeps market growth high over the next five years.”

Methodology:

We sifted through holdings of home appliance ETFs and online rankings to form an initial list of 20 home appliance stocks. Then we selected the 10 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)

Lowe’s Companies, Inc. (NYSE:LOW)

Number of Hedge Fund Holders: 62

Lowe’s Companies, Inc. (NYSE:LOW)’s is the world’s second-largest home improvement retailer, with over 1,700 stores in the United States with the 2023 sale of its Canadian operations. Two-thirds of the products sold in the company’s stores are for maintenance and repair, while the remaining products are for decorating, remodeling, and upkeep of homes. Lowe’s focuses on retail do-it-yourself and do-it-for-me consumers, accounting for around 75% of sales, as well as commercial and professional business clients, accounting for 25% of revenue. Using information from the US Census and estimates of the market size provided by management, Morningstar analysts project that Lowe’s holds a high-single-digit proportion of the domestic home improvement industry.

As of fiscal 2024, the company is expected to generate sales of approximately $83 billion, making it the second-largest home improvement store worldwide, as per analysts. Lowe’s has managed to control costs while keeping its low-cost position by staying focused on the core principles of retail: omnichannel shopping, supply chain optimization, operational efficiency, and customer engagement. A flywheel effect is created when the company keeps a portion of its cost savings and transfers the remainder to its customers in the form of consistently low prices. Its wide moat rating is supported by scale-based cost advantages and intangible asset values, per Morningstar analysts.

Strong Q2 2024 earnings and good operational performance despite industry headwinds contributed to the stock’s over 21% gain in 2024. The company observed a mid-single-digit increase in comparable sales from Pro customers, despite a fall in DIY demand.

Revenue for the second quarter of 2024 was $23.6 billion for Lowe’s Companies, Inc. (NYSE:LOW), a decrease of 5.5% YoY. The revenue also came in $372.3 million short of analysts’ projections. YoY, comparable sales decreased by 5.1% as well.

Having said that, the management has faith that its company will rebound as soon as the market conditions improve. In its investor letter dated Q2 2024, Madison Investments likewise provided an optimistic outlook for the company. This is what the company says:

“At home improvement retailer Lowe’s Companies, Inc. (NYSE:LOW), sales continue to be weak. The economic backdrop in housing is particularly interesting at the moment. On one hand, employment levels are healthy and home values remain resilient. On the other hand, housing turnover, which is essentially the number of homes that have been sold relative to the housing stock, is at historically low levels as homeowners are resistant to giving up low mortgage rates on their current home for a higher rate on a new home. Housing turnover is an important business driver for Lowe’s, so the depressed level of activity has weighed on its profits. However, over time we expect it to normalize and Lowe’s performance to improve.”

Ken Griffin’s Citadel Investment Group is one of the largest shareholders in the company, with 1,213,500 shares worth $267.53 million.

Overall LOW ranks 3rd on our list of the best home appliance stocks to invest in. While we acknowledge the potential of LOW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than LOW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.