Lowe's Stock Could Be a Second-Half Fixer-Upper – Schaeffers Research (blog)

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Home improvement retailer Lowe’s Companies, Inc. (NYSE:LOW) soared to an all-time high of $86.25 on May 9, but has since pulled back to trade at $76.77. The shares are now testing support atop their 200-day moving average, which is in the $76 neighborhood — where LOW stock was trading before a major March bull gap, and representing a 50% Fibonacci retracement of the shares’ rally from their fourth-quarter lows to record highs. If past is precedent, Lowe’s shares could be poised to break out, and now may be the time to pick up short-term LOW options at a bargain.

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Going forward, Lowe’s prospects for a strong second half of 2017 look promising. According to recent data from Schaeffer’s Senior Quantitative Analyst Rocky White, LOW stock has averaged a return of 12.2% in the second half of the year, going back 10 years, with returns positive 80% of the time. A similar rally from current levels would have Lowe’s shares back near all-time highs.

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Analysts are on the fence. Of the 16 brokerages covering LOW stock, eight rate it a “hold” or worse. This skeptical analyst configuration leaves room for LOW to benefit from upgrades down the road, should the stock resume its quest for new highs.

Short-term options buyers may want to hone in on the home retail giant. LOW’s has a Schaeffer’s Volatility Index (SVI) of 20%, which sits in the 27th percentile of its annual range, suggesting near-term options are attractively priced, from a historical volatility standpoint. What’s more, LOW’s Schaeffer’s Volatility Scorecard (SVS) sits at an impressive 87, indicating Lowe’s stock has tended to exceed option traders’ volatility expectations during the past year.

Notably, fellow retail rival Home Depot Inc (NYSE:HD) was mentioned last week as a blue-chip stock to watch. HD stock has averaged a return of 10.7% in the second half of the year, and was positive 80% of the time over the past decade. Home Depot’s SVI sits at just 15%, which is in the 19th percentile of its annual range. Its SVS is a respectable 78, indicating the shares have made bigger-than-expected moves on the charts during the past year, relative to what the options market had priced in.