I mentioned Home Depot (NYSE:HD) in the opening paragraph, and although my first pick comes from the services sector, I’m going to go contrarian by opting for Lowe’s (NYSE:LOW), whose financial picture at the moment isn’t nearly as pretty.
Lowe’s withdrew its $1.8 billion offer to buy Rona (PINK:RONAF) in September amid opposition from Rona’s board and the Quebec government. However, with Rona’s CEO stepping down Nov. 9, institutional investors are clamoring for both sides to get back at the negotiation table and hammer out a deal the provincial government can live with.
Lowe’s currently has 31 stores in Canada compared to 180 for Home Depot. Acquiring Rona’s 80 big-box stores (23 are in the process of closing) would instantly make it a more serious competitor north of the border.
With an enterprise value 8.3 times EBITDA, it’s a much better value than Home Depot, and its current 2% dividend yield is slightly better, too.