Modern Monopolies: Lowes and Home Depot (LOW's)

LOW, HD are duopolies who act like monopolies. Let us look at LOW’s. Historically LOW’s is a poor cousin of HD, but that changed with the new management that came in 2018. Below link will give you metrics that shows you how things have improved over 10 years and specifically from 2018.

They have reduced their share count AGGR 4.92% or 440 million shares or 40% from 10 years ago. When you combine that with steadily increasing sales (6.66% AGGR), increasing margin’s (operating margin from 7.05% to 12.56%, this is pretty impressive given that gross margin remained steady, the entire gain in operating margin is from reducing the SGA!!!, talk about leverage) long-term shareholders do really well.

HD announced that they will spend $1B more by increasing the wages and LOW also took hit today, slightly higher decline than the market. Assume we will go through some sort of economic decline, increasing interest rates will at last impact customers (new homes and home improvements), LOW could see their EPS go below 10. So when thinks get really dark, be prepared to buy for long-term.

At some point, 3 or 4 years from the bottom, LOW can easily earn anywhere between $15 to $18 and you can assign multiples anywhere from 15 to 20 and see what kind of returns are possible.

I will start buy around $150 and if it gets to $125, I will be happy to buy more.