ChartWatchCentral Premium Stock Picks

Improvement Ahead

by
Christina Nikolov
Founder/CEO, ChartWatchCentral, Inc.

Date: July 26, 2010
Company: Lowes Companies
Ticker: LOW
Price: $21.80
Opinion: Bullish

Comments: Home Improvement Retailer Lowes Companies is working on an improvement of its own, after its shares plunged nearly 29% from its April 26th peak. In recent weeks, LOW rebounded from the $19.64 level twice, forming what can only be described as a 'double bottom'. Then on Friday, the 10-day moving average bullishly surmounted the 20-day moving average for the first time since diving below it on May 6th. Fundamentally, the company is sound, with earnings projected to soar 16.8% this year (FY 01/2011) and 19.5% next year (FY 01/2012). And the best part is that the shares are cheap, with forward price/earnings multiples of 15.0 and 12.6, based on projected earnings of $1.45 for FY 01/2011 and $1.73 for FY 01/2012, trading at a discount to their respective growth rates. And as if this isn't enough, the company touts price/book, price /cash flow and price/sales figures of 1.6, 0.6 and 8.9, versus respective multiples of 2.1, 0.7 and 9.8 for the Home Improvement Stores Industry. That said, we firmly believe Lowes Companies' shares would be a great addition to any portfolio. To maximize your gains, we suggest the January 2011 $16 call at $6.10. And if you don't mind ponying up a little more cash, we highly recommend the January 2012 $7.50 call at $14.30, since at that price, 100% of the cost is intrinsic value. Not bad for an option with an expiration date nearly 18 months away.