With most shares having already moved up nicely, it is harder than ever to find solid bargains.

Lowe's

(LOW) - Get Report

stands out in that category. The weak housing market sent EPS from its peak of $1.99 to a recent year low of $1.21 in the year ended January 2010. First half earnings for the current fiscal year were $0.92 versus $0.83, and consensus views for this year and next are now running $1.40 and $1.66, respectively.

Good quality LOW shares trade for about 15x this year's and 12.7x next year's estimates and yield 2.09% while you wait for the likely rebound. Morningstar assigns LOW their highest 5-Star ranking and sees fair value as $36.00. Standard & Poor's is a bit more conservative with a 12-month target of $24.00 and a fair value estimate of $24.50.

Could LOW hit $24.00-$25.00 by early 2012? Sure. It has traded at peak prices of $24.40 and higher during each calendar year of the past decade and hit $28.54 earlier in 2010.

Lowe's (LOW) One Year

Source: Morningstar

View Chart

I am a buyer of shares and a seller of puts right now with the intent to sell some covered calls later, after a move up to at least the $23.00-$24.00 area.

All of the puts allow for decent profits on expiration, while providing good downside protection. I do not mind selling the 2013 series as part of this play since we are holding the premiums and, in my view, the longer the term, the more likely that the housing market will have started recovering.

Trades: Buy 500 LOW for $21.05 per share, sell to open 5 LOW January 2012 22.5 puts at $4.15, sell to open 5 LOW January 2012 25 puts at $5.80 and sell to open 5 LOW January 2013 25 puts at $7.00.

At the time of publication, Paul Price was long LOW shares and short LOW options.

Dr. Price joined Merrill Lynch in 1987 and over the next 13 years worked with A.G. Edwards, Wheat First and Ferris, Baker Watts. Dr. Price enjoyed enough success to retire in October 2000, but he continues to write and give investment seminars.

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