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Lowe's trades at attractive levels. Using options to capture potential gains ahead

Lowe's trades at attractive levels. Using options to capture potential gains ahead

CNBC16 hours ago
Lowe's (LOW) recently broke out from a major consolidation period and presents a strong upside opportunity. With the anticipated Federal Reserve interest rate cuts and LOW's targeted initiatives aimed at accelerating growth, the current levels provide a compelling entry point for investors to seek bullish exposure with an attractive risk-to-reward ratio. Trade timing The timing for bullish exposure in LOW is optimal, the stock has spent the last 5 months in a range between $210 and $230 consolidating. However, it just broke out above this trading range earlier this week while outperforming the S & P 500 . This suggests that there is potential institutional and retail accumulation on this breakout and we are targeting $265 to the upside, the high of 2025. Fundamentals LOW currently trades at a slight discount to its peers supported by strong profitability, suggesting moderate upside potential. Forward PE ratio: 19.4x vs. retail-cyclical industry average 22.0x Future EPS growth: 7.6% vs. industry average 7.2% Future revenue growth: 2.8% vs. industry average 3.7% Net margins: 8.2% vs. industry average 6.2% Bullish thesis Strategic Initiatives for Pro Customers: Lowe's has achieved a notable 30% Pro penetration, with strategic relaunch of its MyLowe's Pro Rewards loyalty program in 2025. Expanded Product Offerings: Lowe's is expanding its product assortments in nearly 500 stores targeting underserved rural markets. This initiative positions Lowe's uniquely to capture increased market share in regions lacking direct competition. Digital & Technological Investments: Lowe's partnerships with technology leaders such as Nvidia , OpenAI, and Palantir to leverage AI and the launch of the home improvement industry's first product marketplace significantly boost its competitive edge. Service Enhancements: Introduction of the Pro Extended Aisle program, allowing direct supplier engagement and streamlined jobsite delivery, significantly bolsters Lowe's competitive capabilities in servicing large Pro orders. Additionally, the anticipated shift in Federal Reserve policy, with interest rate cuts expected starting in September and potentially continuing through year-end, provides a supportive backdrop for interest rate-sensitive industries such as homebuilding and home improvement retail. Lowe's stands to benefit directly from increased consumer and Pro spending in response to more accommodative financial conditions. The trade To capitalize on this bullish outlook with earnings on deck in two weeks, I'm buying a Sept. 19, $240/$260 Call Vertical @ $6.37 Debit. This entails: Buying the Sep. 19, $240 call @ $8.35 Selling the Sep. 19, $260 call @ $1.98 Maximum reward: $1,363 per contract if LOW is above $260 at expiration. Maximum risk: $637 per contract if LOW is below $240 at expiration. Breakeven point: $246.37 View this Trade with Updated Prices at OptionsPlay . This bullish options strategy leverages Lowe's recent breakout, compelling strategic positioning, and macroeconomic tailwinds, providing you with a clearly defined risk exposure and strong upside potential heading into earnings. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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