Wednesday, January 31, 2007
Back in July, when the housing market seemed set for a disaster, I noticed that insiders were buying up shares at Lowe's Companies (LOW).
Despite appealing more to home renovators than new homebuyers, the nation's second-largest home-improvement chain took a beating along with the rest of the housing sector. By late July, Lowe's shares were trading near their 52-week low.
Yet, just before this, Director O. Temple Sloan Jr. purchased 31,100 shares of Lowe's stock, amounting to a $1.9 million purchase. In 2005, Lowe's gave Sloan $75,000 in salary and 1,500 shares of Lowe's stock, valued at $85,000.
So altogether, Sloan received $160,000 in compensation from Lowe's last year.
Sloan's purchase represented more than 25 times his annual salary and 16 times his annual stock compensation as a director.
Seeing this commitment from a corporate insider, I believed Lowe's woes would be temporary. I also thought Lowe's was a compelling buy. Sales had more than quadrupled in the last 10 years. Over the same period, Lowe's had become significantly more profitable, doubling its operating and net margins.
If you'd bought stock in Lowe's in 1996, you would have since made more than seven times your money. And with a buy price of $4 and change back then, Lowe's current annual dividend of $0.20 would represent an 11% yield.
Whether Lowe's will match this growth and profitability over the next 10 years is impossible to tell. One thing is for sure: Sloan is betting on it. Since 2004, he has bought more than $6 million worth of Lowe's stock.
He's not the only one.
Legendary investor Warren Buffett had already established a small position in Lowe's back in 2005. During the second and third quarters of 2006, Buffett expanded his position sevenfold. By September 30, 2006, he owned some 7 million shares, valued at $225 million.
Lowe's stock has rallied 14% since we first wrote about it in late July. That's a nice six-month gain. But looking at who's buying Lowe's now, I'm changing my views on the company. If you're considering buying Lowe's stock, don't look for a quick rally. Add Lowe's to your long-term holdings. Warren Buffett is many things, but a short-term trader is not one of them.
And wouldn't you rather pocket 700% over 10 years, than a quick 30% in four months?
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Energy pipeline firms continue to lead... Atlas Pipeline, Enbridge Energy, and Williams Partners at new highs.
Electronics retailer RadioShack at new 52-week high.