1 Stock Is A Better Investment Than Wal-Mart

The turmoil at this retailer has created an enticing buying opportunity for long-term investors.

May 29, 2014 at 2:37PM

Shares of Target (NYSE:TGT) took a hit hard after its credit card breach. Since then, the stock recovered a bit and is only down 5% year to date. It is bringing in a new CEO to help further progress in Canada and hopefully polish up the company's image. Target is still well behind Wal-Mart Stores (NYSE:WMT) when it comes to international expansion, meaning that it could still be a growth story.

The real reason for a new CEO
Target ousted its CEO earlier this month and plans on bringing in an outside CEO to replace him. This could be a positive move, as the company could use a fresh start. Target's former CEO took over in 2008 and never really managed to get a grip on the company's strategies. The company could use a new perspective on merchandising, e-commerce, and growth in Canada. Regaining consumer trust will be the company's primary focus. 

Despite popular belief, the old CEO wasn't ousted only because of the credit card breach--Target has had issues with getting its Canadian operations jump-started. It opened slightly more than 120 stores last year and three distribution centers in Canada.

This was its first foray into the international markets, whereas Wal-Mart already operates in 27 countries. Target saw expenses in Canada skyrocket, as stores were experiencing supply chain congestion. This left stores both unstocked and overstaffed.

The retail giant
Wal-Mart, the largest retailer in the world, also happens to be Target's top competitor, and the competition is heating up. Wal-Mart is turning to a smaller format for its stores--the goal is to be able to enter smaller markets. The new smaller-format stores will also be equipped with gas stations. The company believes having gas stations will help it gain more traffic.

At the end of last year, it announced plans to open some 270 to 300 smaller-format stores, which is up from its previous plans of 120 to 150 stores. If all goes as planned, that'll put Wal-Mart's small store count at 620 to 650 by year-end; this would put the company close to its small-store goal of 700 by 2017. 

Watch out for the dollar stores
The biggest threat to the major department retailers appears to be the dollar stores. Wal-Mart is moving in on their territory by starting to build smaller stores. Dollar General (NYSE:DG) is the undisputed leader in the U.S. dollar store market, boasting a store base of more than 10,000 stores.

Dollar General might still be able to offer value to shoppers, as its stores are only around 7,000 square feet on average. This allows shoppers to navigate its stores relatively easy. Meanwhile, Wal-Mart's small-format stores will all be larger than 7,000 square feet. Its Neighborhood Markets average 38,000 square feet, and Express stores average 15,000 square feet. Dollar General is also growing its store count at an impressive rate. It plans on opening 700 stores this year compared to the 650 it opened last year.

How shares stack up
Wal-Mart trades at a P/E ratio of 16 based on next year's earnings estimate. Its dividend yield is 2.4%. Target trades at a slight premium, with a P/E ratio of 19. Target trades with a higher dividend yield, coming in at 2.9%. Factoring in Wall Street's consensus growth expectations, Target has a P/E-to-growth (PEG) ratio of 1.2, while Wal-Mart's is 1.8.

Then there's Dollar General, which has the lowest PEG ratio of the three, coming in at 1.1. Its P/E, based on next year's earnings, is also the lowest, at 13.7; however, Dollar General does not offer a dividend.

Bottom line
While Wal-Mart is the undisputed leader in the retail space, Target might be the better value and growth story. Target still has a number of opportunities ahead of it, including international expansion. This is a market that Wal-Mart has already tapped. For investors looking for a solid investment in retail, Target is worth a closer look.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

 

Marshall Hargrave 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