You can add home improvement chain Lowe’s Companies (NYSE: LOW) to the growing list of unlikely COVID-19 beneficiaries. On March 23, LOW dipped below $64 as the stock market bottomed out in the wake of the coronavirus pandemic. Last week, LOW crested above $162 after releasing strong Q2 results.

Five months ago, investors assumed that most big-box retailers would get crushed. For a little while, that was true. Overnight, stores closed in response to social distancing mandates. But what the market failed to anticipate was the speed with which merchants and consumers would adapt to online commerce.

Lowe’s operates nearly 2,000 stores in the United States and Canada. During the quarter ended July 31, the company recorded a 34.2% increase in comparable sales led by a 135% jump in online revenue. As a result, adjusted/diluted earnings per share (EPS) increased by 74% to $3.75.

Lowe’s has long been viewed by Wall Street as playing second fiddle to industry rival Home Depot (NYSE: HD). In truth, their stock market performance is not that far apart. Over the past five years, LOW has posted a total return of 133% compared to 160% for HD.

However, Home Depot is considerably bigger with a market cap of $306 billion versus $120 billion for Lowe’s. For that reason, Home Depot gets considerably more attention from the financial media.

Last week, Home Depot also released its Q2 results. During the second quarter, comparable sales increased by 23.4%. Diluted EPS rose 26.8% versus the same period last year. Based on those key metrics, it would appear that Lowe’s has done a better job of responding to the unexpected opportunity.

More Saving, More Doing

When the coronavirus pandemic first swept across the globe, little thought was given to how consumer behavior might change. Instead, the initial emphasis was placed on the immediate impact on supply and distribution chains emanating out of China.

Then, as most cities and states shut down businesses to impede the spread of the virus, the concern shifted to the demand side of the equation. With more people unemployed and most stores closed, surely retail sales would suffer, right?

That’s where logic has not stood up to reality. Consumer behavior has changed, but it has not diminished. More people are shopping from home, having goods delivered or picking them up at nearby stores.

Also helping Lowe’s and Home Depot is the design of their stores. They are well ventilated, with wide aisles and high ceilings. Their outdoor garden centers, which do most of their business in the spring, never closed throughout the pandemic.

In a perverse and unexpected manner, the unique circumstances created by the coronavirus pandemic played directly into the hands of the home improvement business. Millions of property owners had lots of time and energy on their hands during the spring while stuck at home. It was the ideal time to tackle the proverbial “honey-do” list. Paint the house. Spruce up the garden. Plant a few trees.

Now, we are heading into the fall and winter seasons. It is fair to ask if the home improvement business will continue to prosper. I doubt it. With LOW and HD currently priced at multiples of 23 and 27 times forward earnings, respectively, both stocks appear fully valued to me.

Do it Right for Less

If I am right about that, then now may be a good time to write a covered call option on Lowe’s. A few days ago while LOW was trading at $158, the $165 call option expiring on January 15 could be sold for $10.

That money is yours to keep regardless of how the stock performs. If LOW rises above $165 by the expiration date then the stock will be called away from you at that price. In that case, the net gain would be $17 over its current value, which works out to a return of better than 10% over the next five months.

If you believe LOW is likely to appreciate more than that in the near term, then selling a covered call option is probably not the way to go. However, if you think it will soon peak and level off, as I do, then writing a covered call option makes sense. In fact, with the S&P 500 Index back to its all-time high, now may be a particularly opportune time to engage in covered call writing.

The best time to write covered calls is when stock market optimism is high and rising. That drives up the price of call options, thereby increasing the options premium yield.

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