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Friday, 12/12/2003

Remodeling Season
By Nich Sheldon
LOW - Lowe's Inc

Company Description

Lowe's, a Fortune 100 company with sales of $26.5 billion, has more than 900 stores in 45 states. For more information, visit

[Source: Company Press Release]

Reasons to Invest:

Remodeling season might be over for 2003, but 2004 is just around the corner. With so many shows like Trading Spaces, Design on a Dime, and House Rules, do-it-yourself home improvements have taken charge of this Drip of the Week.

If you have not already figured it out, I am fond of Lowe's long- term outlook. Why Lowe's you ask? First, the fact that they are opening new stores in an economy where uncertainty reigns is impressive. On December 10th, 2003 Lowe's announced that they were expanding their store operating divisions to five from three, in order to stay up with the support of national growth. Secondly, throughout the later course of 2003, Lowe's continued to raise its proverbial ceiling, eventually reaching an all-time high of 60.42. Additionally, LOW just breached the bottom of its regression channel (12/10/03), which would have provided a nice entry point. Today (12/11/03) the stock returned to the inner skeleton of the channel signaling that the recent weakness was just a reflection of overdue profit taking.

Moreover, Lowe's yields a 0.22% dividend, which is a semi-nice incentive. The company also has an annual dividend of $0.12 per share owned. I know a dividend of $0.12 is really nothing to write home about, but I like the stocks price movement over the past year and anticipate more of the same for 2004. Their next dividend is payable January 30th, 2004 to shareholders on record as of January 16th (just something to keep in mind if we are triggered to add the DRIP).

I also like the fact that Lowe's added more than 65% since February of 2003. Additionally, growth in sales, earnings, and free cash flow, as well as headlines like "Lowe's Q3 Raises the Bar," "Lowe's Sturdy Q2," and "Lowe's Raises the Roof," make this stock more than appealing to me. I think that a year or two ago, Lowe's was a moneymaker's secret as it was overshadowed by its archrival, Home Depot. However, now that Lowe's is trading at 25 times 2002's earnings, I think we all can agree its been discovered. The grass is greener at Lowe's as it continues to bite at its orange apron villain's profits. Let's take the fiscal year of 2002 for example. Home Depot's earnings rose by an remarkable 20%, which is weak in comparison to Lowe's 44 percent growth. Home Depot's sales rose by 9%, which does not compare well to Lowe's 21% increase in sales.

In January of this year, Home Depot recorded a 6% decline in sales, while Lowe's fashioned a 17% rise in sales and a 46% boost in profits. When I compare these two stores I can help but to think of the analogy, the "trend is your friend." Now when you compare the two, what trend would you rather follow? I believe that there is raw sex appeal here, as I am nearly certain that women are more attracted to the cleaner, brighter lit Lowe's store than they are to the dimmer saw-dust blanketed floor of Home Depot. Don't get me wrong, I like doing home improvements just as much as the next man, but with the newest fad of do-it- yourself reality television series, my wife has been more enthusiastic than ever. In my opinion, Home Depot is the Hammer and Nail store, while Lowe's is the one handed, air compressed nail gun, of which is ready to rupture through the market's glass ceiling.

On top of that, Lowe's plans to open 140 more stores (this would give them more than 1000 stores) in 2004, as well as an additional 150 stores in 2005. I can't argue with their growth perspective as they are self-budgeting their entire proposed expansion.

LOW's current trend looks similiar to March-May trend of 2003. On May 20th the stock closed under its regression channel only to return back to its channel the next trading day. This is the same thing that happened today (12/11/03). After May 20th, the stock gained more than 20 points before a consolidating period of profit taking took place (just like right now). If all goes well we could see the stock ready to repeat this trend.

Best case scenario, come January Lowe's beats earnings estimates of $0.61, retests the 60 mark, profit taking occurs and the stock dips a little allowing new buyers in for a lower premium. I would like to suspect to see an entry in the 55-56 area formulate once 60 is retested. New buyers (that would be us) continue to feed cash into LOW and it gets vertical resting around the 70 range come April. Profit taking occurs, making the stock cheaper and more attractive to new buyers (remember traders like to buy the dip). The stock moves sideways around new psychological resistance of 70 and then on the announcement of more good news, beating estimates or grand opening of new stores, the stock breaks over 70 and then uses the 70 level as support as opposed to resistance.

This ends another exciting episode of the Drip of the Week. Stay tuned next week, as we will spotlight another stock worthy of the limelight.

Until Next Week,
Nich Sheldon

Broker Recommendations

Strong Buy         3
Buy                6
Hold               8
Sell               0
Strong Sell        0

Brokers Covering  17

DRIP Information:
Shares to Qualify = 1
Auto-reinvestment = Yes
Accept Foreign Accounts: Yes
Temper Enrollment: Yes

Min/Max Investment = $250,000/Year

Reinvestment Fees - 
Dividend investment fees: 0
Cash investment fees: 5% to $2.50+5c/share
Auto reinvestment fees: 5% to $2.50+5c/share

Transfer Agent:

Corporate Headquarters:
9295 Prototype Drive
Reno, NV 89511
Phone: (775) 448-7777
Fax: (775) 688-0777


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