It's the sixth-largest U.S. bank, with plenty of exposure to the Midwest -- a region heavily aligned with the manufacturing industries, which have seen significant improvement (autos, industrials and factory orders are all vastly improved). As a result, PNC revenues are poised to grow faster than those of its peers. The company also has sizable cross-selling synergies and opportunities from its 2008 acquisition of National City; it has already taken $1.8 billion out of costs.
As the economy improves, credit costs will continue to decline, reserves will be released and the company can focus on lending -- commercial and industrial loans improved 4% in the last quarter -- and I expect this segment to continue to improve in the recovery. The stock trades at a discount on a price-to-book and price-to-earnings basis from historical levels, and PNC will be one of the first to raise its dividends -- another positive catalyst.
Finally, I like Lowe's (LOW - Get Report). It's one of the largest home improvement companies in the industry with a specific emphasis on retail Do-It-Yourself. I like this stock for two main reasons -- housing is bottoming, and internal restructuring will improve the company's overall competitiveness, earnings, revenues and margins. The restructuring program is focusing on improving its supply chain efficiencies, products, pricing and service.
Lowe's has also taken aggressive action in cutting costs, a focus that was evident in its last quarter, with a 60-basis-point improvement to its gross margins (ahead of Home Depot's (HD) 24 bps). Lowe's will generate $10 billion in cash over the next five years, which will be used for buybacks and dividend increases. Trading at a 10% discount to HD, the stock is a cheap way to play the recovery in housing and in the company itself.