Taking Advantage of an Undervalued Target


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After taking the weekend to think things over, traders appear to have found some hope. It looks like the United States new tariffs on goods from Mexico won’t sink the stock market just yet.

The S&P 500 is holding nicely above support at ~2,738 — the level that served as resistance in early February and then as support in early March.

This is a positive sign for undervalued stocks on Wall Street. When the market pulls back and then bounces up off support, like we’ve seen the S&P 500 do during the past few weeks, traders look around to see if any stocks appear to be undervalued. In other words, traders usually go bargain hunting after pullbacks.

Target (NYSE:TGT) looks like a real bargain right now, and we want to sell puts on it.

Better-Than-Expected Earnings From a Retailer

TGT recently reported better-than-expected numbers for the first quarter of 2019. The company beat revenue estimates by $140 million and earnings estimates by $0.09 per share — reporting results of $17.63 billion and $1.53 per share, respectively.

Management also affirmed its full-year earnings guidance of $5.75-$6.05 per share. This signals that management isn’t worried about increased tariffs digging too deeply into the company’s margins.

Also, TGT has done an excellent job taking advantage of the increase in consumer spending in the United States. The company increased its comparable-store sales by 4.8% last quarter and boosted its online sales by 42%.

Breaking Above Down-Trending Resistance

The positive earnings news initially sent TGT soaring higher, where it encountered and consolidated below its down-trending resistance level. It has been interacting with this resistance since it reached its 52-week high on September 10, 2018. However, the stock broke through that level yesterday.


Daily Chart of Target Corporation (TGT) — Chart Source: TradingView

We agree with the analysts at JPMorgan who stated, “We believe the shares are undervalued and we see potential upside to consensus.” These same analysts have given TGT a longer-term price target of $100.

This is a perfect opportunity to sell puts on TGT. And we don’t need the stock to climb to $100 per share to collect a profit potential on a put write. But if it does continue rising, we could roll out these puts for even more income.

To find out which TGT puts we’re selling — and to get access to our full portfolio of income-generating trades — consider signing up for risk-free trial subscription to Strategic Trader today. 

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.

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Article printed from InvestorPlace Media, https://investorplace.com/2019/06/taking-advantage-of-an-undervalued-target/.

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