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More Buying at Lowe's

By Stansberry Research Interview Series
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?
 
Good investing,
 
Graham




Market Notes
REITs continue to rise: Kimco, Healthcare Property, and HRPT Properties all hit new highs.
 
Energy pipeline firms continue to lead... Atlas Pipeline, Enbridge Energy, and Williams Partners at new highs.
 
Electronics retailer RadioShack at new 52-week high.
 
Earnings today: Google, Altria, Pulte Homes.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

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