The Federal Reserve's aggressive rate-hiking policy in 2022 understandably was implemented to slow down surging inflation. But in the process, the central bank's actions pushed up mortgage rates, which cooled down the housing market. This situation might alter how shareholders in a company like Lowe's (LOW -0.06%) view the implications for their investment. 

To be fair, Lowe's has been a solid investment to own in the past: Its stock has returned 120% over the last five years, beating out rival Home Depot (HD -0.24%) by a wide margin. But what's in store for 2023? Let's consider the bull and bear arguments for the home improvement retailer. 

What the bulls think 

Lowe's current CEO, Marvin Ellison, spent time in leadership roles at Home Depot before coming to his current company. So, he's bringing prior experience to his current role. This particularly relates to the professional business -- selling tools and supplies to general contractors, plumbers, and electricians. Lowe's only generates about 25% of its revenue from this valuable customer group, compared to Home Depot's 50%, meaning there's a sizable growth opportunity here. 

In February of last year, Lowe's launched a new initiative called Lowe's MVPs Pro Rewards, in response to its survey findings that 90% of professionals value a loyalty program. Pros will get discounts, attractive financing, exclusive offers, and operational support, which will help Lowe's drive stickiness and increase switching costs for these customers. 

This customer cohort is incredibly valuable since they tend to spend more per visit than do-it-yourselfers (DIYers) since they are shopping for bigger projects more frequently. The result can be better sales per store and improved profitability. Lowe's return on invested capital jumped from 15.8% to 35.3% between fiscal 2016 and fiscal 2021, gains that can at least be partly attributed to a greater focus on Pros. 

Another bull argument for Lowe's centers on the current macroeconomic environment. The first thought with higher mortgage rates and cooling housing prices might be that Lowe's is doomed. But this is far from the truth. Management still sees healthy demand. And executives expect revenue to be up by 1.3% (at the midpoint) for the current fiscal year. That's a respectable gain given the current environment. 

Plus, Lowe's should have no problem weathering a prolonged economic downturn, thanks to its healthy free cash flow. 

What the bears think 

As I mentioned above, Lowe's certainly has a sizable opportunity to attract more professional customers. The other side of this equation is that it generates the bulk of its revenue -- roughly 75% -- from DIY customers, usually individuals who want the right products and guidance to complete smaller renovation projects around the house. 

During the depths of the pandemic, when consumers were flush with cash and spending more time at home, DIY demand soared. However, in a recessionary scenario, these customers are more impacted. That's because those homeowners who can hire Pros generally have higher household incomes, thus insulating them from weaker economic conditions. If a severe recession were to happen in 2023, revenue would likely decline. This is what happened for two straight fiscal years during the Great Recession. 

Plus, getting most of its revenue from DIY customers has held it back from catching up to Home Depot's financial success. For example, over the past five years, Lowe's average quarterly operating margin of 9.3% was substantially lower than Home Depot's 14.6%. This makes a massive difference when you consider how much revenue these retailers bring in. 

Bears could also point to Lowe's valuation, which currently stands at a price-to-earnings (P/E) ratio of 20.7. This multiple is lower than the five-year trailing average, but it is higher than Home Depot's P/E of 19.9 (as of this writing). At first glance, this might not seem like a big deal. But when you consider the fact that Home Depot has historically increased revenue at a faster clip while possessing better profitability metrics, the more expensive valuation for Lowe's seems undeserved. 

Shareholders can now better weigh the positive and negative characteristics with this stock.