We commented on this stock back in June of last year. The purple line indicates our expectations then. Initially it did as expected by dropping to about $19 (see that blog) but then it shoots to the moon and, of course, that was not our expectation. There are a number of good (?) reasons why this might have happened. An obvious one, at least in today’s reverse thinking, was that the housing market was so bad that people stayed at home and renovated instead. Others thought that the quality of management had led to greater efficiencies and that Lowes had regained its position ahead of Home Depot. A quick look at the HD chart does not support that view, as HD may even have done relatively a little better (see chart below).
In our view much of the vertical increase in these stocks is entirely due to the Fed’s actions, in this case QE2 that started in Oct. The Fed’s action more often than not increase the volatility in the market, ultimately to no one’s benefit. We would get out of both these stocks rather than hope that QE3 will have a similar impact once again.