It's been a tough past few quarters for retailer Target (TGT -0.91%). Ditto for shareholders. The stock's been halved since hitting record highs in 2021, reaching three-year lows just last month. The company's simply struggling with post-pandemic malaise. It's being further crimped by raw inflation.
But the rest of the market isn't feeling the same pain. The S&P 500's up 20% from March's low and 27% above October's bear market bottom. Although it might still be too soon to call this move the beginning of a new bull market, there's no denying it's a possibility. If that's the case, Target is suspiciously being left out of the effort.
Don't be too discouraged by Target's persistent weakness, though. In fact, if a bull market is in the offing, you might want to use this weakness as an opportunity to buy the stock. The conditions that will start a new bull market are the same conditions that will reverse Target's recent lackluster results.
Here are the three biggest reasons you'd want to buy Target stock before the next bull market solidifies.
1. Target struggles in weak economies, thrives in strong ones
It's often lumped in with rival retailers like Walmart and Costco, although such comparisons look past a critical detail. That is, while Walmart and Costco aim to sell the most commoditized consumer goods at the lowest possible price, Target's aiming at the more discretionary sliver of consumers' budgets.
And that's been a problem of late. The soaring prices of groceries, gasoline, and other necessities mean there's very little -- if any -- discretionary money left to spend at the end of the month for most U.S. households. Target's Chief Growth Officer Christina Hennington even said as much of the company's anemic first quarter (year-over-year sales growth of only 0.5%), explaining during the earnings call that the company's seeing a "reprioritization of spending away from discretionary categories in the face of persistent inflation in groceries and essentials."
There's a reason the broad market's been able to rally so well since late last year, though. That is, the economy at least feels like it's on the mend. Debilitating consumer inflation is abating, with June's overall inflation rate of 3% being the smallest year-over-year price increase in a couple of years. Meanwhile, the Conference Board's monthly measure of consumer sentiment just reached its most optimistic level since mid-2021.
Neither number guarantees people will soon be spending more on Target's more discretionary goods. But that is the implication of both numbers.
2. The current dividend yield is well above average
Dividends aren't everything ... particularly to an investor seeking growth. Even if income isn't quite your thing, however, there's a case to be made for buying Target stock before a bull market-driven rebound. That's the current dividend yield of 3.2%. You won't find too many other stocks of this ilk with a similar risk/reward profile dishing out the same sort of yield. For perspective, Walmart's current dividend is a much more modest 1.5%.
The yield is relatively high for one simple reason -- the sellers overshot their target.
Panicked by the company's unique place during the inflation-riddled wind-down of the pandemic, the bears over-corrected the stock's big run-up from 2020 and 2021. As a result, the yield's higher than it was at any point during the pandemic's height.
It's a quality dividend too. Not only has a dividend payment been made in every quarter going back to October 1967, but the annual payment's been raised every year for the past 52 years.
But you don't need income right now, and don't want to reinvest in more shares of Target? No sweat. Just add the cash payments to your war chest for other opportunities as they surface in the future. The stock's still got capital appreciation potential in addition to its sizable dividend yield.
3. Investors are way more pessimistic than analysts
Last but not least, although the analyst community's calls aren't always right, analysts do tend to be more level-headed than investor hordes are. That's especially true when the stock the crowd is judging is a well-watched and highly traded one like Target.
With that as the backdrop, you should know that Target's current consensus price target of $171.24 is a whopping 27% above the stock's present price. In fact, shares are almost priced at the lowest of all the analyst price targets currently in place for Target stock.
Again, analysts can be wrong. These professionals can be just as guilty of being led by a stock's price as they can be responsible for leading a stock's movement. Anything's possible.
On the flipside, you should be asking what most analysts are seeing that most investors aren't. These pros have had ample opportunity to adjust their targets to the stock's more recent price range. They're not budging. You can interpret that inaction as confidence in Target's plausible future value. All we need is the right nudge to get things moving in that direction.
Of course, should the current bullish effort evolve into a full-blown bull market, you can bet investors' collective doubt keeping Target stock down will quickly give way to a more bullish perception.
