Lowe’s (LOW) Has Risen 43% in Last One Year, Outperforms Market

If you are looking for the best ideas for your portfolio you may want to consider some of Pershing Square Capital Management’s top stock picks. Pershing Square, an investment management firm, is bullish on Lowe’s Companies Inc (NYSE:LOW) stock. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Lowe’s Companies Inc (NYSE:LOW) stock. Lowe’s Companies Inc (NYSE:LOW) is a retail company specializing in home improvement.

On August 13, 2019, Pershing Square had released its Q2 2019 investor letter. The investment firm said that Lowe’s Companies Inc (NYSE:LOW) was one of the biggest contributors to its performance for the first six months of 2019. The stock has posted a return of 43.0% in the trailing one year period, outperforming fund’s benchmark the S&P 500 Index which returned 22% in the same period. This suggests that the investment firm was right in its decision. On a year-to-date basis, Lowe’s Companies Inc (NYSE:LOW) stock has risen by 37.1%.

Last month, we published an article revealing Pershing Square’s bullish investment thesis on Lowe’s Companies Inc (NYSE:LOW) stock in its Q2 2020 investor letter. This suggests that the investment firm has been bullish for a long time on Lowe’s Companies Inc (NYSE:LOW).

Pershing Square fund posted a return of 45.3% during the first half of 2019, outperforming fund’s benchmark the S&P 500 Index which returned 18.5% in the same period. Let’s take a look at comments made by Pershing Square about Lowe’s Companies Inc (NYSE:LOW) in the Q2 2019 investor letter.

“Lowe’s first quarter earnings in May demonstrated that the company continues to make meaningful progress on its business transformation. Lowe’s reported U.S. same-store sales growth of 4.2% despite the negative impact from adverse weather. Lowe’s results exceeded those of Home Depot for only the third time in nine years. We attribute Lowe’s strong same-store sales results to a handful of recent initiatives that have improved product selection, customer service and convenience, particularly for the Pro customer, the professional tradesmen that perform repair and maintenance, remodeling and construction services for others, and are Lowe’s most frequent and highest value customers.

While Lowe’s reported same-store sales growth, this progress was offset by a 165 basis point decline in gross margins, the majority of which was due to the complexity of the company’s legacy pricing systems coupled with employee turnover in the merchandising organization, which resulted in a failure to sufficiently raise retail prices to offset the impact of product cost inflation. Since the end of the quarter, the company has begun to remediate the pricing issues, and expects to launch a new price management system later this year. Lowe’s anticipates gross margin pressure to abate over the course of the year, ultimately being restored to prior levels.

Lowe’s stock has increased 6% year-to-date and currently trades at 17 times analyst estimates of Lowe’s next-twelve-month earnings, which do not incorporate the potential for significant future profit improvement. Lowe’s EBIT margin guidance for 2019 is for an approximate 9% operating profit margin (inclusive of the recent pricing issues), compared to its medium-term margin target of 12% and Home Depot’s current margin of 14.5%. If Lowe’s achieves its medium-term margin target, it will generate significant increases in profit, which, when coupled with the company’s large share repurchase program, should lead to accelerated future earnings-per-share growth. We believe that Lowe’s stock has the potential to appreciate substantially as the company continues to make progress on its business transformation.”

Last month, we published an article highlighting Lowe’s Companies Inc (NYSE:LOW) dividend trend. The company is one of the 28 dividend kings in the US.

In Q1 2020, the number of bullish hedge fund positions on Lowe’s Companies Inc (NYSE:LOW) stock decreased by about 8% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with Lowe’s growth potential. Our calculations showed that Lowe’s Companies Inc (NYSE:LOW) is ranked #30 among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

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