On the mark
Target Corporation (NYSE:TGT), was the first stock I researched, reported on, and purchased when I started working for The Motley Fool in 2011. Shares of Target were trading around $47 apiece at the time . The stock is up more than 20% in the past year to where it trades today at $67 a share. That’s not a bad run for a discount retail stock.
In fact, the bullseye retailer is my second best performing stock pick ever, behind Apple, whose stock I purchased in October of 2003 at just $23 a share. Apple would still be my largest holding today had I not sold my position in December to become a first-time homeowner. The stock was trading around $535 at the time I cashed out.
My near 10-year investment in Apple helped me put a down payment on a house. The reason I mention this is because in those moments you’re grateful to be invested in the stock market. Unfortunately, it doesn’t always play out that way. Zynga Inc (NASDAQ:ZNGA) brought me back down to reality, and today it remains one of my worst performing investments to date.
So, how did I get it right with Target? I understood the business and liked management’s decision at the time to purchase the leasehold interests of Zellers stores in Canada. For those unfamiliar, Target issued $1 billion worth of corporate bonds at the start of 2011 to purchase the Zellers locations with the intent to open 100 to 150 Target stores in the Great White North during 2013 and 2014.
Target’s weighted average cost of capital of 8% at the time of the deal favorably compared to the chain’s 10.6% return on invested capital. Fast-forward to today: The retailer stayed true to its commitment of opening its doors in Canada this year. Last week, Target opened its first three locations just outside of Toronto.
Target has so far hired 5,000 Canadian employees for its stores there and plans to hire another 27,000 workers by the end of the year. Marking the company’s first expansion outside of the U.S., Target is set to open 24 stores in Ontario by the end of this month, according to Reuters. Moreover, Target hopes to have 124 new stores open in Canada by the all-important holiday shopping season in December.
How’s that for international growth, eh? Costs tied to these store openings will continue to pressure Target’s operating margins over the near term. However, this investment should pay off in big ways for Target down the road. Ultimately, I believe Target will be a core holding in my portfolio for a long time to come.
The article My Top 2 Stocks: Tesla Motors and Target originally appeared on Fool.com and is written by Tamara Rutter.
Fool contributor Tamara Rutter owns shares of Apple, Tesla Motors, and Target. The Motley Fool recommends Apple, eBay, and Tesla Motors. The Motley Fool owns shares of Apple, eBay, and Tesla Motors.
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