Lowes (LOW)

Market Cap: 70.1 B
Sector: Services, Home Improvement Stores
EPS Growth Next Year: 17%
Gross Margin: 34.8%
Return on Equity: 30%

Lowe's is the "other" Home Depot. The stocks trade similarly and they have almost identical fundamental metrics. If you like Home Depot from an investment standpoint, you will like Lowe's also. Lowe's and Home Depot recently reported earnings and both posted strong results. Lowe's reported an increase in Quarterly earnings over last Quarter, project earnings growth of 17% for next year and the following 5 years.

 In terms of price action LOW is now trading at new all-time highs and leading HD. Lowe's is offering a strong risk/reward at the current moment.

LOW Weekly chart

Lowe's has been trading mostly sideways since the beginning of 2015. The weekly chart has formed a bullish Cup/Handle base and this week following earnings, broke out of the trading range on strong volume. The weekly chart also shows an engulfing bar which means the stock's range completely engulfed all of last week's trading. This tends to happen at the beginning of a new trend.

We know this stock can rally, in 2014 the price appreciated from $45 per share up to $75 in nearly a straight line. It has since held closely to those highs, consolidating the large gains, and now appears ready to resume a new uptrend.

There is a saying in the markets, "history doesn't repeat, but it often rhymes". I think this applies here nicely. In mid 2013 until late 2014 LOW traded sideways after a strong rally. This consolidation lasted about 9-months. We then saw another strong move that was ignited by a surge in volume and a breakout from the prior range. This rally lasted for the next 6-months and gained almost 100%. The current setup is also a nearly 9-month consolidation. Price and volume are suggesting another similar rally could be imminent.

My indicators are aligned very nicely here and are confirming the strength in price. Relative Strength vs the SP500 remains in a clear uptrend and is making a new high. The Weekly MACD has resumed higher after pulling back to the zero line, and volume is expanding on the breakout showing institutional buying.

All signs point to a trend resumption here and using the swing low at $74.50 for our stop presents a very favorable risk/reward opportunity. If the potential rally is anything like the last two we can expect a move near the $130-150 area. That basically amounts to a $5 risk for a $50+ reward. I'll take 10-1 risk/reward every time its offered to me.