Why Did Lowe's Companies, Inc. Shares Climb 12% in January?

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Lowe's (NYSE: LOW) has been a steady performer even as the overall retail market has declined. The company's product line is largely internet-proof, either because many items are of a size that makes shipping difficult while others are simply things people want to see before buying.

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The chain has generally delivered solid earnings and same-store results, but an activist investor that has taken a position in the company thinks it can be doing better.

What happened

Hedge fund D.E. Shaw Group took an approximately $1 billion stake in the $84 billion company, which was disclosed on Jan. 12. The hedge fund has taken an activist position that Lowe's has been underperforming compared with its chief rival, Home Depot (NYSE: HD), Reuters reported.

After discussion between the company and D.E. Shaw, three independent directors were added to the Lowe's board. The hedge fund had input on the additions.

"We appreciate Lowe's collaborative approach and are pleased to have worked together to enhance the company's board of directors," said Quentin Koffey, a portfolio manager at the D.E. Shaw group, in a press release.

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So what

Shares of Lowe's rose by 30% in 2017, but that was behind Home Depot's 41% gain. D.E. Shaw's going public with its stake sent shares of the company immediately higher, giving momentum that carried through the month.

After closing December at $92.94, shares in the home-improvement retailer finished January at $104.73, a nearly 13% gain, according to data from S&P Global Market Intelligence. That's a strong bump, but it's worth noting that the company gave back much of its increase during the market correction. Shares in Lowe's closed on Feb. 9 at $97.17, still up, but only by 4.5%.

Now what

Shares of Lowe's jumped because of the perception that the company is doing well, but not as well as Home Depot. That may be true, and the new members D.E. Shaw forced on to the board may help unlock that value.

For now, however, the stock bump is really just one based on the hope created by what might happen. Creating actual change in how the company operates may not be a short-term project, and it could take time for the retailer to see the benefit of whatever operational moves it eventually makes.

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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has the following options: short May 2018 $175 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot and Lowe's. The Motley Fool has a disclosure policy.