Are you worried about an economic collapse in 2024? Or are you just in the market for a great value-and-yield combo? Either way, go get yourself some Target (NYSE:TGT) stock before the opportunity passes you by. Fears of rising unemployment and the lagging effects of last year’s interest-rate hikes might prompt some investors to just hide out in cash. Yet, there’s a better solution.
Target stock is reasonably priced, and while you’re waiting for the economy to implode, you can collect some juicy dividend distributions. So, let’s start off with Target’s major challenge and then consider the retail giant’s opportunities.
Target’s Big Problem
Target, like other big-box retailers with bricks-and-mortar locations throughout the U.S., has to deal with a very costly problem. It’s called “inventory shrink,” and it mainly refers to shoplifting.
After the company reported its third-quarter 2023 financial results, Target Chief Financial Officer Michael Fiddelke spoke directly about the shrink issue.
“Growth in shrink remains a significant financial headwind,” Fiddelke said.
“Growth in shrink” is a funny phrase, but it’s a serious issue for Target. Alarmingly, inventory shrink reduced Target’s Q3 2023 gross profit margin by 40 basis points (it came in at 27.4%).
Fiddelke basically asked investors to be patient, saying, “We think progress there probably doesn’t happen quickly but we’re focused on progress over time.” Still, despite the shrink problem, Target’s third-quarter 2023 adjusted EPS grew 36.3% year over year to $2.10.
That’s far ahead of Wall Street’s consensus call for $1.47 per share. Going forward, Target has an opportunity to improve its bottom-line results even further if the company can control the shrink problem.
Will TGT Stock Make Your Portfolio Recession-Proof?
I won’t claim that Target stock will make anyone’s portfolio recession-proof. However, it can add an element of what I call recession-resistance. Remember, people seek discounts during times of economic turmoil, and Target offers a variety of products at reasonable prices.
One way to weather an economic storm is to focus on stocks that aren’t overpriced. Target’s management has been accused of “execution missteps,” but now there’s turnaround potential. Plus, these “missteps” probably brought TGT stock down to its current, highly attractive price point.
On a trailing 12-month basis, Target has a GAAP-measured price-to-earnings (P/E) ratio of 18.35x. That’s below the sector median P/E ratio of 21.14x, which is itself pretty reasonable.
So, Target stock might not get beaten down too badly if there’s a recession. Besides, investors can collect and reinvest Target’s generous dividend payments while they’re waiting for a recession to come and go.
The average forward annual dividend yield for the consumer cyclical sector is around 1%. Target pays three times that amount, yielding around 3% per year. The company is known for steadily raising its quarterly dividend payments over time. That’s a sure sign that Target respects its shareholders.
Here’s a Smart Price Target for Target Stock
Target stock once traded at more than $250, but investors should be realistic in 2024. If the stock gets to $180, which is close to the 52-week high of $181.70, that would be a milestone to celebrate.
So, keep your eye out for recession signals and get ready for TGT stock to reach $180 sometime this year. After that, you can keep holding the shares if you’d like. The value proposition might not be quite as favorable, but you’ll still get to collect those delightful dividends that Target distributes every quarter.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
