4. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Shareholders: 53
Trailing 12 Month Net Income: $8.4 billion
Home improvement retailer Lowe’s Companies, Inc. (NYSE:LOW) probably won’t get many investors’ blood pumping, but the company has been a cash generating machine over the last few years, growing its net income more than three-fold and its earnings per share more than four-fold since 2019. In fact, the seller of nuts and bolts has the second-highest TTM net income of any of the boring stocks on this list. Due to weakness in the housing market, LOW shares have been hit pretty hard this year despite the company tracking for about the same performance as it managed last year, which is nothing to sneeze at.
Lowe’s Companies, Inc. (NYSE:LOW) ranked as one of the most popular stocks among hedge funds as recently as mid-2020, but hedge funds have been bailing on the stock since then. There’s been a 26% drop in ownership of LOW during the past two quarters alone. One of the company’s biggest bulls is Bill Ackman’s Pershing Square, which owns over 10.2 million shares to give it nearly 24% 13F exposure to the stock.
Ackman discussed some of the secular tailwinds he expects Lowe’s Companies, Inc. (NYSE:LOW) to benefit from over the long-term in Pershing Square’s Q2 2022 investor letter:
“Lowe’s Companies, Inc. (NYSE:LOW)’s is a high-quality business with significant long-term earnings growth potential underpinned by a superb management team that is successfully executing a multi-faceted business transformation.
COVID-19 was a transformational event for the US housing market, causing homeowners to invest significantly in their homes as they shifted nearly all their daily activities to the home environment, including work, school, and leisure. The increased use of the home during COVID, in turn, increased the need for repair, maintenance and remodel activity, which significantly benefited Lowe’s same-store sales. As consumers return to spending more time and money on out-of-the home activities the near-term demand for certain Do-It-Yourself (“DIY”) categories has decreased. Moderation in DIY demand combined with increased mortgage rates and decreased housing affordability has caused many market participants to become concerned that the home improvement industry may give up a significant part of their COVID pandemic sales gains.
While we expect that there will be some near-term volatility and continued moderation of DIY demand, growth remains strong for projects requiring professional installation (the “Pro” business) due to a substantial backlog of projects undertaken during COVID, which should support industry growth in the near-term. In addition, we believe the medium[1]term growth outlook for the home improvement industry remains strong as demand is likely to normalize at a materially higher level as compared to the pre-COVID era. For the decade prior to COVID, home improvement industry sales were notably depressed relative to their long-term averages as a percentage of overall consumer spend and GDP and have only now returned to their longer-term historical levels. Moreover, we believe COVID has permanently renewed consumers’ focus, appreciation, and utilization of their homes, which combined with higher home equity values, strong consumer balance sheets, low levels of home inventory for sale and an aging housing stock that requires an increasing level of maintenance, will likely result in a structurally higher level of ongoing home industry spending in the future. In the most recent quarter demand strengthened throughout the quarter as DIY consumers returned from summer vacations and focused on less seasonal home improvement projects…” (Click here to read the full text)
