Lowe's - Home improvement in America II (BUY - 127.2)

Lowe's Companies, Inc., together with its subsidiaries, operates as a home improvement retailer in the United States, Canada, and Mexico. The company offers a line of products for construction, maintenance, repair, remodeling, and decorating.

It provides home improvement products in various categories, such as lumber and building materials, appliances, seasonal and outdoor living, tools and hardware, fashion fixtures, rough plumbing and electrical, paint, millwork, lawn and garden, flooring, and kitchens.

It also offers installation services through independent contractors in various product categories; extended protection plans; and in-warranty and out-of-warranty repair services. The company sells its national brand-name merchandise and private branded products to homeowners, renters, and professional customers.

As of February 1, 2019, it operated 2,015 home improvement and hardware stores. The company also sells its products through online sites comprising Lowes.com and Lowesforpros.com; and through mobile applications. Lowe's Companies, Inc. was founded in 1946 and is based in Mooresville, North Carolina.

Share price 

Lowe's joined by Home Depot share a duopoly in the home improvement retail space. Correlation with the SPY is cyclical, meaning that it follows the overall market from time to time, making a correlation trade an interesting proposition.

Apart from that, it is important to note that EBITDA is consistently rising, and with an attractive analyst consensus estimate of 12.4% from the current share price, further strengthens the notion that the stock is a buy.

Markets are currently undergoing tremendous volatility as fears of a global recession are sparking sell-offs. It is true that GDP  in several economies has been declining, and global growth projected to slow due to the U.S. - China trade war. 

It is important to note though that October is generally a month with higher than average market volatility.

"October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February" - Mark Twain.

The October-effect poses an interesting vantage point for savvy investors, whilst markets are currently falling, it is important to become of aware of the fact that implied probabilities of future interest rate cuts by the FED are consistently increasing.

October FED-rate cut probabilities
December FED-rate cut probabilities

Bad news is good news, will eventually translate into rate cuts and a stabilization of markets and broader market movements upward, which would present an opportunity for fundamental investors to purchase shares at a discount due to recent market volatility.

We therefore give Lowe's a BUY, with a target price of 127.2$ until the end of Q2, 2020.

Profiting strategies on the future developments surrounding the stock are numerous;

1. Purchasing a deep-in-the-money call-options with a strike at 100 USD, (with an expiry 1-1.5 years in to the future*) would offer substantial leverage. Basically entering a synthetic-long-stock position. 

2. Purchasing the stocks themselves.