I find it funny how I come up with story angles sometimes. How these ideas come to me is always different. I'm just glad that they come more often than not.
This morning, I looked at Popularity & Price, the daily blog from StockTwits that lists the U.S. stocks hitting 52-week highs and lows yesterday. Tons of stocks hit 52-week highs, but only two hit 52-week lows. That’s a sign the markets are on a major tear as we near the final month of 2023.
I was surprised that Loews (L), the Tisch family’s holding company, was among the many names hitting a 52-week high. Followed by 1,120 StockTwits users, the Barchart.com list of stocks hitting 52-week highs and lows says Loews has hit a 52-week high 33 times this year, ranking it 14th among U.S.-listed stocks.
For some strange reason, it occurred to me that Loews sounded just like Lowe’s (LOW), the home improvement retailer in a fight-to-the-death struggle with Home Depot (HD) for bragging rights amongst America’s do-it-yourself and professional renovators.
So, with Loews on a roll, it would be fun to compare the two stocks, concluding this article by determining which is the better buy right now.
Why Is Loews on Fire in 2023?
Loews is a holding company with four operating businesses: CNA Financial (CNA), Boardwalk Pipelines, Loews Hotels, and Altium Packaging. It owns 91.7% of CNA, while the other three businesses are 100%-owned private companies. In addition, the parent has $2.3 billion in cash and investments on its balance sheet, with just $1.8 billion in debt.
As I said, Loews has hit a 52-week high 33 times this year. Further, its shares are up 16% year-to-date and 20% over the past 52 weeks. That’s considerably better than Lowe’s, whose stock is up less than 1% in 2023 and down nearly 5% over the past year.
While Loews is up for the year, it’s still underperforming the S&P 500, which has gained 18.4% YTD, 240 basis points better than the holding company. However, over the past five years, there was no contest. Lowe’s gained 128%, 56 percentage points higher than the index and 2.8x better than Lowe’s.
So, what makes Loews unique besides the fact it’s the Tisch family holding company?
For starters, its book value per share, excluding AOCI (accumulated other comprehensive income), was $79.92 a share at the end of September, 6.7% higher than at the end of December 2022. Based on a current share price of $68.04, it trades at a 15% discount to book value.
Now for some context on the company’s discount to book value.
Loews’ highest price as a public company was in October 1997, when it hit $115.63. It’s had two stock splits since – March 2001 (2-for-1) and May 2006 (3-for-1). So, one share in 1998 is six in 2023 and worth $408.18, a compound annual growth rate of 5.64%.
In 1997, when its shares traded at $115.63, it had a book value per share of $84.04, so it traded at a 38% premium to book value.
If Loews shares traded at a 38% premium today, they’d be at $110.29, 62% higher than where they’re currently selling.
Loews is a sum-of-the-parts investment.
Each part described at the beginning of this section is worth more than what the public markets value. Its CNA investment is currently worth $10.27 billion. The remaining three operating businesses, along with its cash and investments on the parent’s balance sheet, are worth just $4.9 billion by the markets.
That’s too little.
What About Lowe’s?
Analysts have become more optimistic about Lowe's in recent weeks. It's currently rated 4.15 out of 5 by the 27 analysts who cover LOW stock, according to Barchart.com data, with a mean target price of $240.67, 21% higher than where it’s currently trading.
However, LOW stock is down more than 5% on Tuesday after reporting Q3 2023 results that missed the mark.
On the top line, it had sales of $20.5 billion, down 12.8 percent from $23.5 billion a year earlier. Its same-store sales declined 7.4%. Its revenues were $390 million lower than the analyst estimate. On the bottom line, it beat the $3.02 a share estimate by four cents, but its free cash flow fell 68.3% to $546 million in the quarter.
It's an actual mixed bag.
The stock is down because of the weak guidance for the remainder of 2023. It expects revenue of $86 billion at the midpoint of its guidance, down from $88 billion. It expects adjusted earnings per share of $13.00 in 2023, down from its previous guidance of $13.40 at the midpoint.
“While we’ve seen a more cautious consumer for some time now, this quarter we saw some of these consumers increasingly prioritizing experiences over goods spending on travel and entertainment,” CNBC reported CEO Marvin Ellison’s comments from its Q3 2023 conference call.
Home Depot has been reporting a similar slowdown in DIY projects. However, I find it baffling that Ellison blamed it on consumers opting for experiences such as travel and entertainment.
Just today, I read veteran finance journalist Herb Greenberg’s take on Topgolf Callaway Brands (MDOG). I’ve always enjoyed his insights. Greenberg got a quote from veteran transportation and freight analyst Donald Broughton that suggests Ellison missed the memo.
“Until recently, they [consumers] were choosing to spend it on experiences and services. As they begin to spend it on goods, as we predict and freight flows are beginning to signal, the headlines are going to swing toward utter disbelief about how strong the holiday shopping season is,” Broughton commented.
The Bottom Line Verdict
Broughton’s comments suggest Ellison is merely trying to undersell and manage future expectations, knowing that the tide is turning and Lowe’s will ultimately benefit from the change in consumer spending in the first half of 2024.
As for Loews, it’s not a stock to own if you’re an inpatient investor. However, if you’re like me and enjoy businesses with lots of moving parts, the discount to book value makes it a contrarian buy heading into 2024.
If you think home improvement stocks have been unfairly punished in 2023, buy HD, not Lowes.
If I had to buy one, and only one, I’d go with Lowes, primarily because its business model is much easier to understand for most investors than Loews.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
