Target Corp. (NYSE:TGT) shares have been performing well in a market that has dropped about 10% from the highs. The company is one of the world's largest retailers and it has successfully been able to compete with Wal-Mart (NYSE:WMT). Target is perceived to be a little more upscale than some mass-market retailers, and yet it still offers extremely competitive prices. This has given the company a unique edge. Target shares are likely to continue outperforming the market, so it makes sense to consider buying the stock, (especially on dips) for the following reasons:
1. Target could be the perfect stock to invest in, considering the market and economic conditions that exist today. A big concern for investors is that they could buy a stock that suddenly plunges due to a major economic recession, a stock market correction, or perhaps some type of new competition or technology. The type of goods and price points that Target specializes in, are recession-resistant, and that means this company is not likely to be strongly impacted by economic weakness or a market correction. Target is also not highly exposed to technological changes or new competition. Plus, it has already proven itself to be an able competitor against Wal-Mart, and the barriers to entry are very high for any new companies.
2. Target has been able to beat earnings estimates for the last several quarters and the company did it again when it recently reported financial results. For the first quarter of 2012, Target announced net earnings of $697 million, or $1.04 per share. This was up from 99 cents per share in 2011. Furthermore, the positive revenue trends appear to be continuing as the company reported sales gains of about 5% for the month of May. This could bode well for next quarter's results.
3. Target shares pay a solid dividend which yields about 2%, however, investors who buy now and hold for a few more years, could be getting paid much more in the future. Earlier this year, the company set a goal to boost the dividend to $3 per share by 2017. This could turn Target into a premiere dividend growth stock. The company plans to achieve this goal through increased profits, and with continued share buy backs. The company has bought back about $10 billion worth of stock since 2007, and the company plans to buy an additional $5 billion in stock over the next couple of years. When a company buys back shares, it reduces the number of outstanding shares, which has the effect of boosting earnings per share for the remaining shareholders. Investors should focus on accumulating Target shares on any dips, and holding for the dividend and earnings growth potential.
Key Data Points For Target From Yahoo Finance:
Current Share Price: $58.16
52-Week Range: $45.28 to $59.40
Dividend: $1.20 which yields 2%
2012 Earnings Estimate: $4.32 per share
2013 Earnings Estimate: $4.87 per share
P/E Ratio: about 13.5 times earnings
Wal-Mart Stores Inc. is another leading mass-market retailer, the largest in the world. The stock saw a substantial drop when it was announced that the company was allegedly involved in a bribery scandal relating to Wal-Mart stores in Mexico. The shares have rebounded and it seems that investors are willing to ignore the problem for now. However, if true and if the company tried to cover it up, there could be repercussions that investors might regret later. Major investigations have begun, and it is way too early for investors to act like nothing has happened. This is another reason why it might make more sense to invest in Target, which does not have the investigation "overhang" and risk.
Key Data Points For Wal-Mart Stores Inc. From Yahoo Finance:
Current Share Price: $67.72
52-Week Range: $48.31 to $68.48
Dividend: $1.59 which yields 2.3%
2012 Earnings Estimate: $4.91 per share
2013 Earnings Estimate: $5.34 per share
P/E Ratio: about 14 times earnings
Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.