E (25:02)
Reminds me of Seaboard, another the conglomerate. No analyst coverage in a stock that just won't quit. I only found about them last week because they have known butterball turkey brands of many, among many others. Now, the last time I recommended Lowe's was way back in April 2022 when the stock was trading at around 63. It's not 105 and change, up 67%. That's versus 53% for the S&P 500. Nice win. But in the five months after that segment, Lowe's pulled back to 49. So you had to take a leap of faith on this one. Since then, though, the stocks were more than double in little more than three years. Especially in recent months, this one's caught fire. So what's driving the move? Okay, first, let me give you some background. Lowe's is what we call a wholly company consisting of four businesses in four distinct industries. Company gets more than 80% of its revenue, about 62% of its profits from its 92% ownership stake in CNA Financial. That's a gigantic property and casualty insurance company company. Lowe's also owns a company called Boardwalk Pipelines. That's a natural gas and nat gas liquids pipeline and storage play. And that made up about 12% of their sales last year and 29% of the profits. They've got Lowe's Hotels, which is only 5% of business, but it's probably the one you're most familiar with. Finally, They've got a 53% stake in a smaller rigid plastic packaging company. It's called Altium Packaging. It made up 4% of their earnings last year. Beyond that, it's important to remember that Lowe's is a family business. A great family and a great business. At the beginning of the year, former CEO James Tisch, the second generation, passed the role to his son Ben Tisch, whose older sister happens to be the new York City's police commissioner. She's staying on, by the way, under the new mayor, to the collective relief of everyone who is worried about public safety. Now. You never know with these family business situations. But in the first letter to shareholders earlier this year, Ben Tish explained, quote, like my father and his father before him, I believe that the CEO of Lowe's Corporation has one job and one job only, to grow intrinsic value per share, end quote. Sounds good to me and has the added benefit of being true, as I know his father and I knew his father before him. The best we have in business in this country. Honorable is the word that comes to mind first and always. Lately, the company's been doing a great job of growing intrinsic value because its two largest businesses, CNA Financial, Boardwalk Pipelines, they basically print money. Through the first nine months of the year, Lowe's net income from CNA was up a solid 4.3%, including a much more impressive 43% jump in the most recent quarter. As for Boardwalk Pipelines, its earnings grew by nearly 25% through the first three quarters of the year. The smaller businesses are both down this year, but they're simply not large enough to pull anything down. They don't move the needle. Remember, CNA and Boardwalk collectively account for more than 90% of the sales and earnings at Lowe's. So why don't we start with cna? The past few years have been a very good time for the property and casualty insurance space, with insurance premiums rapidly on the rise. At the same time, we've had relatively high interest rates since 2022, which is terrific for this industry because insurance companies like to take your premiums and invest them in the bond market. There's a reason the other majors, like Progressive, I'll say Chubb, have been such terrific outperformers for the past five years or so. The most recent quarter was especially strong for CNA, with its profits of 43% year over year, thanks to better underwriting results and higher net investment income. Now, some of that's frankly because we had a milder hurricane season, though it's not necessarily something we can repeat. As for pipelines, regular viewers know that I'm a big fan of these energy toll roads with little exposure to the actual prices of the underlying commodities. We've got a ton of liquefied natural gas export terminals being built, which is great for Boardwalk because it means more volume going through their pipes. Plus, all these new data centers are desperate spread for electricity, which translates to more demand for natural gas that goes through pipes saw its net income grow 22% year over year in the most recent quarter. And they've got eight major projects. These are all growth projects still in the works, including several in the Gulf coast region that will keep that growth rate growing. That's very good news for Lowe's, the parent company. I remember when this pipeline seemed to go nowhere and I thought it might be a bad acquisition. But Lowe's, it took a longer term view than I had and it's really paying off now. There's one more reason why this stock become a quiet juggernaut. And this may be the trick, the reason why it just won't stop. See, Lowe's is a steady repurchaser of its own shares. From the end of 2014 until the most recent count at the end of September, Lowe's retired an astounding 45% of his common shares outstanding, reducing its overall share count from 373 million to 207 million. They can afford to do this because the CNA financial business throws off a ton of cash and distributes much of that cash via dividends. CNA trades independently, where it has a very attractive 4% yield. In reality, the payoff's even better because every Every year since 2014, CNA has also paid you a special dividend. This year it was $2 per share, which means the actual dividend yield for 2025 is north of 8%. When you include that, here's some quick math. Lowe's owns roughly 248 million shares to CNA Financials, so they got around 954 million in dividends from the subsidiary in 2025. That's enough to cover the cost of all their share buybacks in each of the past four years. Talk about a great business model. Even with with flat profits, those buybacks still translate into some terrific earnings per share growth. How about the valuation? Right. Lowe's trades at roughly 16.5 times last year's earnings. That's pretty reasonable, especially compared to the S&P 500, where some people think it's trading at 28 times last year's earnings. I prefer to use a forward valuation based on future earnings estimates, but there's no analyst coverage here. Still, though, through the first nine months of 2025, Lowe's put up 8.8% earnings growth. If they can keep that up in the fourth quarter, they'll make just under 7 bucks. $7 per share. That means the stock's trading at just roughly 15 times in my back of the envelope earnings estimate. And that is really cheap, especially given the high quality management year. So here's the bottom line in this story. That is not exciting and I don't care. It's easy to see why Lowe's keeps making the new high list that I like and is exciting and I do care, even though it doesn't get as much attention. The core insurance business doing great. The second most important business board pipeline is really coming on its own. Meanwhile, the secret sauce here is the company steadily buys back shares. One reason the stock still so darn cheap even after a big run. And that's why I still very much like Lowe's Letter L here. And if you come back next year at this time, I'll probably like it even more. Let's go to Dustin in Oklahoma.
