Loews vs. Lowe’s: Which is the Better Investment?

Lowe's Stock

As we approach the final month of 2023, Loews (NYSE:L) and Lowe’s (NYSE:LOW) have emerged in the financial spotlight, each with its unique story in the market. Loews, the Tisch family’s holding company, has seen a significant surge, hitting a 52-week high 33 times this year and attracting attention from investors. Lowe’s, the home improvement retailer engaged in fierce competition with Home Depot (HD), has faced challenges in 2023.

Why is Loews Performing Well in 2023?

Loews operates as a holding company with four key businesses: CNA Financial (CNA), Boardwalk Pipelines, Loews Hotels, and Altium Packaging. It holds a 91.7% stake in CNA, while the other businesses are privately owned. Despite hitting a 52-week high multiple times this year, Loews’ year-to-date stock performance is up 16%, outperforming Lowe’s, which has seen less than a 1% gain in 2023 and a nearly 5% decline over the past year.

One distinguishing factor for Loews is its book value per share, which stood at $79.92 at the end of September, reflecting a 6.7% increase from December 2022. Currently trading at a 15% discount to book value, Loews presents a unique investment proposition. It is considered a sum-of-the-parts investment, where each business component is valued more than the market indicates.

Lowe’s Challenges and Opportunities

Lowe’s, the home improvement giant, has faced a more challenging year, with its stock down over 5% following Q3 2023 results that missed expectations. The company reported a decline in same-store sales by 7.4% and a 12.8% drop in sales from the previous year. While it beat the earnings estimate by four cents, its free cash flow fell 68.3% to $546 million in the quarter.

The weak guidance for the remainder of 2023 has contributed to Lowe’s stock decline, with projected revenue at $86 billion and adjusted earnings per share of $13.00, down from the previous guidance of $13.40 at the midpoint. CEO Marvin Ellison attributed some of the challenges to consumers prioritizing experiences over goods, and spending more on travel and entertainment.

Investor Considerations and Conclusion

Analysts remain optimistic about Lowe’s, with a mean target price of $240.67, representing a 21% potential upside. However, the company’s stock performance in 2023 has been affected by a cautious consumer and changing spending patterns.

Loews, on the other hand, presents a sum-of-the-parts investment opportunity, trading at a discount to book value. While it may not be a stock for impatient investors, its unique structure and the potential for value realization make it an intriguing contrarian buy heading into 2024.

Ultimately, the decision between Loews and Lowe’s depends on an investor’s preferences and risk tolerance. Lowe’s may be a more straightforward choice for those seeking exposure to the home improvement sector, while Loews offers a more complex investment thesis with potential value hidden beneath its diverse business holdings.

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