Why Lowe's Stock Was Crushing the Market on Wednesday

What happened

Worries about the health of the economy might be overblown, if the performance of DIY home improvement retailer Lowe’s (LOW 4.32%) on Wednesday is any indication. Bolstered by a very positive note from an analyst, the company’s stock surged more than 4% higher on the day, trouncing the bounce of the S&P 500 index.

So what

In a note distributed late Tuesday afternoon, Morgan Stanley prognosticator Simeon Gutman waxed enthusiastic about the home improvement retail segment. Based on fresh calculations on the broader economy, Gutman is estimating that the segment will grow by 1.4% in 2023; as Lowe’s and longtime rival Home Depot (HD 2.74%) are the two anchor companies in that space, both should benefit commensurately.

The analyst isn’t as bullish on the near-term prospects for home improvement retail. He feels that existing home sales in the U.S., a key bellwether for the segment, will be sharply negative in both the second half of this year and the first half of 2023 before turning into the black.

Bearing in mind the strong influence such sales have on associated retailers, Gutman wrote that “as long as the housing market and GDP grow modestly thereafter, we also see a theoretical path to growth in ’24 as well.”

Now what

The analyst singled out Lowe’s and Home Depot because they are not only the stocks most readily identified with home improvement retail, they have also tended to outgrow their peers, he said.

Investors were clearly moved by this, as they also traded up Home Depot stock on Wednesday — and it rose roughly in concert with Lowe’s.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Lowe’s. The Motley Fool has a disclosure policy.