We recently compiled a list of the Jim Cramer Wants You to Check These 10 Stocks. In this article, we are going to take a look at where Lowe’s Companies Inc. (NYSE:LOW) stands against the Jim Cramer-approved stocks.
Jim Cramer noticed a strange pattern during the recent winning streak last week. According to Cramer, when a company reported earnings that were better than expected, its stock price would rise significantly. Even if the results were just a bit better than feared, the stock still went up. Conversely, if a company posted disappointing earnings, the market largely ignored it, believing it was just a temporary setback because the Fed might soon cut interest rates. This led to continued buying. However, this trend changed today as reality began to take hold.
“You see, we had a very odd pattern during the winning streak. It was a bit of Pangloss and a nip of Camelot. When a company reported a better-than-expected quarter, it was great. When a company reported a quarter that was just better than feared, the stock still rose. And when a company reported a bad quarter, we decided that it was the last bad quarter because the Fed was about to cut rates, so it was no big deal—buy anyway. In other words, companies could do no wrong, but not today. Today, we had a bit of a reckoning, a dose of reality.”
Jim Cramer pointed out that Tuesday’s market drop was anticipated because the S&P had been rising for eight straight days, and a ninth day would have been unusual, something not seen since 2004. The day was challenging, with the Dow falling 62 points and the S&P dropping 2%, which felt like a bigger loss. This raises concerns about whether the market can continue to rise, especially since negative news finally led to a decline after a strong eight-day rally.
“We were due for today’s modest pullback—the S&P had been up for eight straight days, and nine straight would have put us in rarefied territory. We haven’t seen that kind of winning streak since 2004. Today’s session was rough, with the Dow off by 62 points and the S&P dipping 2%, like losing 33%. We have to wonder if the market still has the momentum to go higher because today we got bad news, and guess what—stocks actually went down. That didn’t happen much during the 8-day gain.”
Jim Cramer observed that the market had been in a phase where strong performance drove stock prices up, and even poor results were overlooked because of the belief that the Fed would intervene. However, after seven days of gains, he suggested that this optimistic trend might be ending. The market has now reached a point where stocks no longer automatically benefit from positive bias.
“People had been reporting a perfect market scenario where good performance led to stock gains, and poor performance was cushioned by expectations that the Fed would step in to save the day. But after seven relentlessly positive days, we have to accept that stocks may no longer get the benefit of the doubt. We’ve reached a point where the market is sufficiently elevated, and we’re back to business as usual—where the good stocks rise, and the bad ones fall. At these high levels, we can’t just dismiss the bears with “heads I win, tails you lose.” There’s a return to rationality, and rationality is the enemy of a market where everything rallies indiscriminately.”
Cramer also mentioned that many investors are hoping for the Fed to step in during their meeting at Jackson Hole on Friday. If those expectations aren’t met, there could be significant selling pressure, particularly on a summer Friday. He noted that Lowe’s recently suffered because the market might be entering a phase where multiple rate cuts are necessary, but there’s no clear indication that such cuts are on the way. Without them, the company may struggle to turn its business around quickly.
“It doesn’t help that many expect the Fed cavalry to show up on Friday when they head to Jackson Hole. If things don’t go as expected, there could be a lot of selling, especially since it’s a summer Friday.”
Our Methodology
In this article, we analyzed a recent episode of Jim Cramer’s Mad Money and selected ten stocks he talked about. We also included information on how hedge funds feel about each stock and ranked them based on the number of hedge funds that own them, from the fewest to the most.
At Insider Monkey we are obsessed with 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).
A family excitedly browsing through the aisles of a home improvement retail store.
Lowe’s Companies Inc. (NYSE:LOW)
Number of Hegde Fund Investors: 62
Jim Cramer recently reviewed Lowe’s Companies Inc. (NYSE:LOW) performance, a prominent home improvement retailer. He pointed out that while Lowe’s Companies Inc. (NYSE:LOW)’s recent quarter was slightly weaker than expected, the decline was not significant.
“Let’s start with Lowe’s, the well-known home improvement chain. The quarter was weaker than expected, but not by much. Management explained that there aren’t enough housing transactions happening for them to hit their targets. As CEO Marvin Ellison said, ‘People aren’t moving nearly as often as they typically do because current mortgage rates are so much higher than their existing rates.’ He added, ‘As a consequence, housing turnover is hovering near its lowest level since the mid-1990s, and the preference for spending on services, especially among more affluent consumers, has persisted much longer than expected.’
Lowe’s also discussed weakness in big-ticket items, noting that homeowners are deferring their projects. They mentioned a great deal of uncertainty, particularly around interest rates and inflation. People who locked in lower rates before the Fed started tightening simply don’t want to take out a new mortgage at much higher rates, not to mention home equity loans, which are typically used to pay for these big-ticket items. As a result, Lowe’s cut its guidance.”
Lowe’s Companies Inc. (NYSE:LOW), a leading home improvement chain, had a tough quarter due to weaker-than-expected performance, primarily driven by current housing market conditions. CEO Marvin Ellison pointed out that high mortgage rates are keeping people from moving, resulting in the lowest housing turnover since the mid-1990s. This has led consumers to focus more on services rather than major home projects.
However, Lowe’s Companies Inc. (NYSE:LOW) is adapting to these changing consumer preferences and economic uncertainties. As housing turnover eventually picks up and consumer spending shifts back, Lowe’s Companies Inc. (NYSE:LOW) is well-positioned to recover and potentially exceed expectations. Lowe’s Companies Inc. (NYSE:LOW)’s ability to navigate these challenges and its strategic adjustments suggest a promising outlook for the future.
In Q2 2024, Lowe’s Companies Inc. (NYSE:LOW) achieved revenue of $23.6 billion and an adjusted diluted EPS of $4.10, even though comparable sales fell by 5.1% from the previous year. Despite this decline, Lowe’s Companies Inc. (NYSE:LOW) saw growth in its Pro and online segments, highlighting the success of its strategic efforts. Lowe’s Companies Inc. (NYSE:LOW) has been expanding its delivery options and launching the MyLowe’s Rewards program, setting the stage for future growth.
Furthermore, Lowe’s Companies Inc. (NYSE:LOW) demonstrated strong financial health by generating $2.7 billion in free cash flow and repurchasing 4.4 million shares for $1 billion. With its robust fundamentals, strategic improvements, and focus on high-growth areas, Lowe’s Companies Inc. (NYSE:LOW) is well-positioned to rebound and excel as market conditions improve, making it a promising investment for long-term gains.
Madison Investors Fund stated the following regarding Lowe’s Companies, Inc. (NYSE:LOW) in its Q2 2024 investor letter:
“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.”
Overall LOW ranks 4th on our list of the stocks Jim Cramer wants you to check out. While we acknowledge the potential of LOW as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. 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.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
