Why the Target Data Breach Is Good for Prospective Investors

While a breach is bad for business, it may be good for investors.

Feb 26, 2014 at 5:43PM



Although the news has not been terribly good for Target (NYSE:TGT) lately, the data breach issues in late November and early December of last year have created an excellent opportunity for potential investors. The company's stock, which had lost 18% of its value in the last six months, seemed poised to recover before news of the data breach came to light. Since then, more bad news has arrived in the form of allegations that the data breach was preventable. It would seem that it will get worse before it gets better for the company. 

How much worse will it get?
With over fifty lawsuits filed since the breach, the stock price will fall somewhat lower as consumers are tentative about shopping at a company which has been so publicly compromised. The current silence of the company in responding to these allegations will likely hamper investor confidence in the immediate short term.

Yet this creates a perfect scenario for investors looking for a solid buy-and-hold stock. Regardless of the bad press, Target has still achieved an excellent return on investment, with an average return-on-equity in the high teens over the last ten years. What's more, Target continues to do strong business despite the bad press, as its revenue has increased since the second quarter of last year and it has trended upward for the last five years. 

Several analysts are expecting dividends from Target to go up for another year in a row. Currently at $0.43 per share, Target is ranked third on dividend yield among all department-store stocks at 3.07% and second on absolute dividend. With a proven business model in a difficult retail market, the company is able to retain a strong position against competitors.

Comparison to a contemporary
While the companies are rough analogues of one another, Wal-Mart (NYSE:WMT) does not seem to be doing as well as Target. Although Wal-Mart has noticeably larger revenue streams than Target, those streams have not been as regular for the company as investors may have hoped. While doing incredible business in the sense of absolute numbers, Wal-Mart's fourth-quarter revenue was half of what it was in the quarter before. Wal-Mart's stock price has also been trending downward, though there are signs that a two month fall in share price is beginning to turn around.

This may change in the near future; the company has been looking to enter into developing economies by increasing its market presence in locations such as Chile. Yet, with operating costs rising over the last year, Wal-Mart is not doing as well comparatively as Target has been doing, even with the latter's bad press.

Don't reach for your wallet just yet...
Despite the remarks from analysts that Target should be bought immediately, investors may consider waiting another week as news of a weak fourth quarter comes to light. Since the data breach occurred just before the fourth quarter, which has historically been strong for the company, this recent weakness is understandable.

However, this weak quarter does set investors up for buying Target's stock right after the complete fourth-quarter report comes out next week. Though the report may seem to show the results of a weak company, this is due only to recent press and it does not indicate the company's profitability over the long term.

If Wal-Mart goes down, who takes over retail?
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they’re planning to ride the waves of retail's changing tide. You can access it by clicking here.

Kurt Avard has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers