In this article, we will be looking at the 5 best grocery stocks to buy. To read our analysis of the grocery shopping segment and take a look at some other stocks in this space, check out the 11 Best Grocery Stocks to Buy.
5. Target Corporation (NYSE:TGT)
Number of Hedge Fund Holders: 46
Target Corporation (NYSE:TGT) is a Minnesota-based operator of department stores across the U.S.
Target Corporation (NYSE:TGT) ranks as the seventh-biggest retailer in the U.S. and a leading player in the grocery segment, with food and beverage sales representing one-fifth of the company’s top line. On August 18, Michael Baker at DA Davidson increased the price target on Target Corporation (NYSE:TGT) from $185 to $203 while maintaining a ‘Buy’ rating.
During its latest earnings call, Target Corporation (NYSE:TGT) revealed that it has made major progress in addressing the problem of excess inventory, which hampered the company’s bottom-line margins in Q2 2022. Baker anticipates Target Corporation (NYSE:TGT) to be in a strong position by Q4 and to boost its margins back to historical levels. Furthermore, Target Corporation’s (NYSE:TGT) share price is expected to increase as the multiples for the retail sector improve with a change in investor sentiment.
Ensemble Capital shared its stance on Target Corporation (NYSE:TGT) in its Q2 2022 investor letter. Here’s what the firm said:
“Speaking on their earnings call, Target’s CEO Brian Cornell said that spending on items such as kitchen appliances, TVs and outdoor furniture – products that consumers splurged on while stuck at home – has declined sharply. While they had expected there to be a shift from spending on goods to services as America exited pandemic lifestyles, they didn’t anticipate the speed and magnitude of the shift. On the other hand, they saw luggage sales grow by an astounding 50%, along with robust growth in “going out” categories such as sunscreen, beauty products, and even toys as families return to hosting large birthday parties for their children. So, despite Target seeing increasing foot traffic and higher spending overall, they got caught with the wrong inventory relative to what customers wanted to buy. What this means for investors is that it is incorrect to say that the consumer is weak, despite weakness in some consumer facing companies. Rather what people are spending money on is changing rapidly, which is good or bad for a given company based on what they sell. Importantly, with demand shifting from items that were in short supply, there is good reason to think that inflation in these categories will moderate. Indeed, Target stated that their plan was to put their excess inventory on sale, something that consumers haven’t seen a lot of over the past two years. But as demand for COVID era goods moderates, demand for activities such as travel has surged, driving up inflation in airline tickets and hotel rooms. This illustrates the way that the shock waves from the pandemic have scrambled the typical economic cycle such that even at a time when all signs point to the biggest summer travel season in history, investors are worried that we are headed into, or are already in, a recession.”
