Market Crash Predictions and 5 Stocks to Buy for Bad Times

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In this article, we discuss the market crash predictions and 5 stocks to buy for bad times. If you want to read our detailed analysis of these stocks, go directly to the Market Crash Predictions and 10 Stocks to Buy for Bad Times

5. Lowe’s Companies, Inc. (NYSE:LOW)

Number of Hedge Fund Holders: 60   

On January 12, Truist analyst Scot Ciccarelli assumed coverage of Lowe’s Companies, Inc. (NYSE:LOW) stock with a Buy rating and raised the price target to $293 from $284, noting that key industry drivers like aging household infrastructure, imbalances in housing market, and consumer behavioral changes due to COVID-19 would all combine to drive home improvement growth, allowing Lowe’s Companies, Inc. (NYSE:LOW) to expand margins through systems and process improvements in 2022. 

Hedge funds have expressed a lot of confidence in the ability of Lowe’s Companies, Inc. (NYSE:LOW) to deliver solid returns as a new fiscal year begins. At the end of the third quarter of 2021, 60 hedge funds in the database of Insider Monkey held stakes worth $5 billion in Lowe’s Companies, Inc. (NYSE:LOW). 

In its Q2 2021 investor letter, Pershing Square Holdings, Ltd., an asset management firm, highlighted a few stocks and Lowe’s Companies, Inc. (NYSE:LOW) was one of them. Here is what the fund said:

“Since the onset of the COVID-19 pandemic, Lowe’s has experienced a signifi cant acceleration in demand driven by consumers nesting at home, higher home asset utilization and the reallocation of discretionary spend. In the three years since Marvin Ellison became CEO, the company has executed a multi-year transformation plan to bolster Lowe’s retail fundamentals, reduce structural costs, expand distribution capabilities, and modernize systems and the company’s online capabilities. This transformation has allowed Lowe’s to meet consumers’ needs during this highly elevated period of demand, and positioned the company for continued success and accelerated earnings growth.

In the second quarter, Lowe’s reported U.S. same-store-sales growth of 2.2%. Growth was bolstered by strength from the critical Pro consumer, where Lowe’s reported growth of 21%, off setting moderating do-it-yourself (“DIY”) demand. While DIY demand has receded from peak-COVID-19 periods, Pro customer demand has accelerated as consumers engage Pro’s for larger renovation projects.

Notwithstanding the headline growth figure, which is impacted by comparisons to COVID-19-aff ected months from spring of 2020, demand remains extremely elevated relative to baseline 2019 levels. July same-store-sales, the most recent full month for which the company has provided disclosure, were up 31.5% on a two-year basis and management indicated August month-to-date results are substantially similar. More significantly, Lowe’s reported Pro growth of +49% on a two-year basis in Q2, evidence that Lowe’s focus on the Pro is bearing fruit. Share gains with the critical Pro customer will provide a tailwind to growth that should allow Lowe’s to outperform market-level growth going forward.

Even as the robust demand experienced during the height of COVID-19 stabilizes at a new base, the medium and longer-term macro environment remain very attractive for the home improvement sector and Lowe’s in particular. This favorable context for the sector is evidenced by consumers’ enhanced focus and appreciation of the importance of the home, higher home asset utilization, rising home prices, historically low mortgage rates, an aging housing stock, strong consumer balance sheets, and the general lack of new housing inventory.

Against this backdrop, Lowe’s is focused on taking market share and expanding margins. Pro penetration today is still only 25% of revenue as compared to Lowe’s medium-term target of 30% to 35%, providing a runway for continued above market growth. Management continues to execute against various operational initiatives (Lowe’s “Perpetual Productivity Improvement” program) designed to improve the customer experience while enhancing the company’s margins and longterm earnings power. The company’s long-term outlook implies significant opportunity for continued margin expansion and earnings appreciation as it executes its business transformation.

Lowe’s currently trades at approximately 17 times forward earnings. Home Depot, its closest competitor, trades at approximately 22 times forward earnings despite Lowe’s superior prospective earnings growth. We find this valuation disparity to be anomalous in light of Lowe’s strong execution and potential for further operational optimization.”

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