Just a few months ago, I purchased shares of Lowe's (NYSE:LOW) for the first time. I was looking to anchor my IRA with a stock that had a track record of beating the S&P 500 average, was reasonably valued, and paid a healthy dividend. Lowe's checked those boxes for me. But with this market crash, you can probably guess my investment is down more than I could have imagined. And yet, I'm not even thinking about selling.
When it comes to Lowe's, its core business has thrived for decades. I'm counting on that to continue by holding my shares. But here are three catalysts that I still believe can propel the stock higher over the next five years -- my minimum holding period.
1. Improving e-commerce experience
In today's retail, brick-and-mortar businesses must have compelling digital channels to truly have an omni-channel strategy -- where traditional commerce and e-commerce compliment each other. Lowe's e-commerce sales have been lackluster, and 2019 was no exception. In its fourth-quarter earnings call, CEO Marvin Ellinson said that its e-commerce growth lagged the overall market, and contributed to the company missing its revenue expectations.
Ellison elaborated that Lowes.com started 2019 still running on 10-year-old technology, and the company desperately needs to keep upgrading in 2020. It's actively pursuing this right now, and says it expects e-commerce sales to pick up in the second half of the year.
That guidance was before the coronavirus uncertainty took hold on the markets. In the U.S., we're in the early stages of people staying home more. Already, companies like Alphabet and Microsoft are encouraging people to work from home to prevent the spread of COVID-19. Could this actually be a catalyst for Lowe's e-commerce platform?
It's speculation at this point. But if Lowe's does see increased e-commerce activity due to the coronavirus, any gain will be temporary unless the updates it's making right now are worthwhile. After all, no one enjoys navigating a clunky website. However, if the website upgrades are up to snuff, this could spark some e-commerce momentum.
2. A growing home-owner population
Over the weekend, the Federal Reserve voted once again to reduce U.S. interest rates to nearly zero, attempting to mitigate the fallout from the coronavirus. This wasn't good news for bank stocks, as it affects profits. But if you're in the market to buy a new home, it's fantastic.
Recent data from the U.S. Census Bureau shows that 2020 already started off with strong demand with 57,000 new home sales. That's higher than six different months in 2019, including last January. Now with the cost of home-ownership dropping, it could continue spurring a wave of first-time home buyers.
That would benefit many home-improvement retailers including Lowe's and Home Depot (NYSE:HD). That's because homeowners always have to do maintenance. Conventional wisdom says one should annually save between 1% and 4% of a home's value for necessary repairs -- and that says nothing to discretionary upgrades. Needless to say, an influx of home buyers is good for Lowe's. And thanks to lower interest rates, it just might happen.
3. A concerted effort targeting professional customers
I've just mentioned individual homeowners, and it's an important demographic to be sure. But professional customers are even more valuable. Individual homeowners tend toward more sporadic purchases as wants and needs arise. But if Lowe's earns the loyalty of a professional customer, the result can be a steady source of revenue.
It's an area of intentional focus for Lowe's right now. In Q4, comparable pro-sales exceeded the company's average -- an encouraging sign. Lowe's has increased in-stock construction-project products, and has added exclusive perks including a dedicated checkout for pro customers. This resulted in pro-satisfaction levels rising 4% in Q4.
Home Depot has long dominated with professional customers. In the third quarter of 2019, executive vice president Ted Decker estimated that professional sales make up 45% of the company's total. One of the key ways it's excelling is by leveraging a dedicated website for the pro customer. This business-to-business platform has over 1 million members -- an indication of Home Depot's strength.
Lowe's progress in this area is currently modest, but if its investments pay off, it would play a major roll in closing its revenue gap with Home Depot. Despite only having 16% more stores than Lowe's, Home Depot generated 52% more revenue in 2019.
When the market is crashing and your stock is down, it can be hard to keep a level head. But one of the most important things when investing in stocks is knowing why you bought in the first place. While these three reasons aren't exhaustive to why I bought Lowe's stock, it's part of what I'm reminding myself as I hold my shares no matter how bad the market crash gets.