We recently compiled a list of the 7 Best Department Store and Discount Retailer Stocks to Buy. In this article, we are going to take a look at where Target, Corp. (NYSE:TGT) stands against the other department store and discount retailer stocks.
Consumer Sentiment Across the US
Consumer sentiment in the US is recovering: it rose to a six-month high in August as the positive ripples of optimism over the economic outlook spread across the country. This improved consumer confidence reading was reported by the Conference Board at the end of August, highlighting the perception that business conditions across the country are likely to improve over the coming six months. The results also suggested that the chances of an oncoming recession are declining. The consumer confidence index by the Conference Board rose to 103.3 in August from 101.9 in July, its highest level since February.
However, Americans are still anxious. Concerns about the labor market are soaring, especially after the unemployment rate in the country rose to 4.3% in July, almost a three-year high. The Federal Reserve appears to be mirroring public concerns about the labor market. In a highly anticipated speech to the Kansas City Fed’s annual economic conference, Jerome Powell, Federal Reserve Chair, said that increasing cooling in the job market would be unwelcome. He expressed optimism about inflation rates in the country, claiming that they appeared within the 2% target by the US Central Bank.
“The time has come for policy to adjust,” Powell said. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
The rapid increase in unemployment is mostly driven by slow hiring, rather than rising layoffs. However, Powell claimed that:
“We do not seek or welcome further cooling in labor market conditions,” he said. “We will do everything we can to support a strong labor market as we make further progress toward price stability.”
Consumer prices in the US rose moderately in July. A report released by the Labor Department at the end of August marked the third consecutive month of tame consumer price readings. Producer prices rose slightly in August to suggest a downward trend for inflation. Reports of falling inflation are running alongside business anecdotes claiming that consumers are employing bargain-hunting tactics to push back against high prices. Consumers are also reducing their purchases and are switching to lower-priced substitutes, which is a promising trend for discount retailers with competitive pricing. Moreover, with rate cuts around the corner, these stocks are poised to do well.
Our Methodology
We used the Finviz stock screener to identify stocks in the department stores and discount retailers businesses. We then shortlisted the stocks that were the most widely held by hedge funds, as of Q2 2024. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A woman purchasing groceries at a Target store, with a cart full of products.
Target, Corp. (NYSE:TGT)
Number of Hedge Fund Holders: 52
Target (NYSE:TGT) is an American retail giant that operates a chain of discount department hypermarkets and stores, with around 2,000 stores across the US and Canada. It was one of the top-performing stocks in the pandemic, experiencing increasing growth with its Drive Up curbside pickup program. However, the company’s business fell with increasing inflation and changing consumer spending patterns due to high interest rates.
Investors looking for signs of a comeback were pleasantly surprised with Target’s (NYSE:TGT) Q2 2024 earnings report. Comparable sales grew by 2%, and traffic growth increased by 3%. With traffic growth in all six merchandising categories of the company, customers seem to be coming back to Target (NYSE:TGT). Sales in apparel, one of its key categories, rose by 3%. Its discretionary categories comprise a significant portion of its revenue and are also improving.
Target (NYSE:TGT) is trading at a P/E ratio of 16.17 at a 9.30% discount to its sector. Its revenue grew by 2.7% to $25.2 billion, along with several other bottom-line improvements in the most recent quarter. For instance, its earnings per share exceeded analyst estimations of $2.18, going to $2.57. The company also increased its earnings per share guidance from $8.60-$9.60 to $9.00-$9.70. In addition, Target’s (NYSE:TGT) net income grew by 26.54% since last quarter and 48.85% since last year.
It sports a consensus Buy rating among analysts, with its median price target of $153 presenting an upside of 17.17% from current levels. As of Q2 2024, Target (NYSE:TGT) is held by 52 hedge funds, with Diamond Hill Capital holding the highest stake worth $458.13 million. It ranks third on our list of the 7 best department store and discount retailers stocks to buy. Carillon Eagle Growth & Income Fund stated the following regarding Target Corporation (NYSE:TGT) in its Q2 2024 investor letter:
“Target Corporation’s (NYSE:TGT) sales continue to feel the consumer softness in discretionary goods. In addition, while margins are recovering, they are not up to expectations. Encouragingly, sales are sequentially increasing and comparable sales are expected to get easier as Target enters the back half of the year.”
Overall TGT ranks 3rd on our list of the best department store and discount retailer stocks to buy. While we acknowledge the potential of TGT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TGT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.