Target Corporation (NYSE:TGT) has been trading on the New York Stock Exchange since 1967. And for the last 48 years has grown its dividend every year. That makes TGT a Dividend Aristocrat almost twice over.
The point here is that TGT is not the kind of stock that will have hockey-stick-shaped price graph. It’s a ‘slow and steady’ foundational stock. You buy this one and check on it every couple of years to see how it’s performing.
It’s a solid income pick with some growth wrapped around it. But the income is consistent — around 3.5% nowadays — and the growth is dependent upon broader economic factors.
TGT has had a tough time since it missed its earnings numbers for the second quarter. That sent the stock down and it has continued to stay in the red (off 7%) for 2016.
The biggest concern regarding Target stock moving forward is, how well it can adapt to online efforts from Wal-Mart Stores, Inc. (NYSE:WMT) and juggernaut Amazon.com, Inc. (NASDAQ:AMZN).
You see, the traditional brick-and-mortar business is being eclipsed by online retail and AMZN is the top player in the market. It established its online presence years ago and now has added shopping features beyond its initial book inventory.
There are usually much better margins in online retailing since you don’t have to pay for stores or the utilities of those stores, as well as the salaries to operate the stores. In recent years, Amazon has scaled up its retail model and linked it to its state-of-the-art logistics to become the No. 1 online retailer.
This has been the challenge of big-box stores like Target and Walmart. TGT is well-secured in its mid-priced segment. It offers a more compelling quality-for-price model, whereas WMT is more about price. That means Target has some pricing flexibility, not having to offer the least-expensive goods, but goods with value.
TGT has also started to make significant inroads into the organic foods business. This is one of the key pivots TGT has made in recent years.
Again, this model caters to shoppers willing to pay slightly more to get more perceived value. And it also helps create faster moving items in its large stores.
Bottom Line for TGT Stock
Part of Target’s problems this year have been in its restructuring, and that’s a lot better than if it wasn’t hitting its numbers and had no plans to do something about it. TGT is upping its game on all fronts.
It’s opening smaller stores that are returning higher margins than WMT. It has begun to shift its focus to more of a ‘one-stop shop’ by adding healthy groceries. It has beefed up its online presence and is seeing solid growth from it.
Target stock is much closer to realizing its sweet spot relative to Walmart and Amazon. And that bodes well moving forward.
Also, don’t forget we’re entering into the holiday spending season. This will be a true test of how well TGT is modifying its brand.
And even if this presidential election ends with a surprise, Target is the kind of quality stock that will draw a lot of the ‘safe’ money. What’s more, it’s an undervalued bargain at current prices.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
