Many industries tend to have a few big players. There will likely be a single player that dominates the industry. But things can change. And underdog companies looking to catchup to the big dog can potentially deliver better returns while doing so.
That can come about from a better product or service mix, better customer service, or a way to improve profitability during an economic downturn.
In the home improvement retailer space, Lowe’s (LOW) is down more than the overall market in the past year. It doesn’t help that the housing market has slowed down.
However, Lowe’s could better capitalize on a slower housing market, as existing homeowners look at taking on home projects. Competitor Home Depot (HD) tends to get more sales from workers in the housing construction space. That makes Lowe’s look like a better deal going forward.
Action to take: Both Home Depot and Lowe’s trade at about 19 times earnings, and offer dividends in the 2-2.5 percent range. Lowe’s looks a bit cheaper in terms of its price to sales and growth. And both retailers should fare fine, even with a continued consumer spending slowdown.
For traders, the Lowe’s April $220 calls, last going for about $4.75, offer mid-double-digit gains in the coming months on a continued rally higher in shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.