Many stocks are struggling this year due to fears that tariffs and trade wars could weigh on the economy, potentially resulting in a recession. Numerous companies have already been raising concerns about rising costs, which has investors worried that a broad market sell-off may be inevitable.
But if you're investing for the long term, then buying stocks that are falling in value right now can be a great move. By investing in quality businesses at reduced valuations, you can put yourself in a position to generate strong returns in the future.
Three stocks that are in negative territory this year but that still look good in the long run are Target (TGT 1.73%), e.l.f. Beauty (ELF +1.88%), and Best Buy (BBY 3.35%). Let's take a closer look at these businesses to see why they may be worth buying today.
NYSE: TGT
Key Data Points
1. Target
Retail stock Target has declined 16% in value this year as of this writing. Investors continue to be concerned about troubling economic conditions that are likely to weigh on its future results, as the business relies heavily on discretionary purchases. Tariffs pose a new risk for Target -- the company warned this month that its prices on affected products are going to rise as a result of the increased costs.
There's definitely near-term risk that Target's stock can still fall even further in value. But investors shouldn't forget that this is still a sound company to invest in. Target consistently posts profits and its valuation does come at a discount. The stock is trading at just 13 times its trailing earnings -- well below the S&P 500 average of more than 23.
Target's stock is trading near its five-year low and its recent dividend yield of 3.9% may sweeten the deal for long-term investors who are willing to be patient. This is a Dividend King that has raised its payout for more than 50 consecutive years. As long as you're willing to hang on for the long haul, buying this retail stock can be a great move to make right now.
NYSE: ELF
Key Data Points
2. e.l.f. Beauty
A company that may feel the effects of tariffs heavily on its operations is e.l.f. Beauty, whose CEO was relieved to learn that new tariffs on imports from China were only 10% -- the concern was that the tariff could be much higher. The company makes approximately 80% of its cosmetics in China, so it's particularly vulnerable to rising tariffs.
As a result of the concerns, investors have been incredibly bearish on the stock and it has plummeted close to 40% since the start of the year. To make matters worse, the company also said it saw softening trends in January, prompting it to trim guidance for the current fiscal year (which ends this month), projecting that its sales growth rate will be between 27% to 28%, versus its previous forecast of 28% to 30%.
It's still on track to generate $1.3 billion in sales this fiscal year, which is around 30% higher than the $1 billion e.l.f. Beauty generated last year, and more than double the $579 million it reported in the fiscal year prior to that. The business has been a growth machine, and while tariffs do pose a risk, the levies shouldn't dissuade investors from buying shares of the company. It trades at more than 40 times its trailing earnings, but that falls to 18 when looking at its forward price-to-earnings (P/E) multiple, which is based on analyst expectations.
NYSE: BBY
Key Data Points
3. Best Buy
Another retail stock that faces challenges due to tariffs is Best Buy, which also recently said that it may need to raise prices due to the trade war because China and Mexico are two key countries from which it imports products. The ability for the company to weather the storm will depend on how willing consumers are to pay higher prices for discretionary purchases.
Best Buy's stock is only down 7% this year, making its slide the mildest of the stocks on this list. Things could get worse in the short term, however, as Best Buy projects that its comparable sales growth rate will be between 0% and 2% for the current fiscal year (it goes until the end of January) -- but that's without yet factoring in the effect of tariffs.
As with Target, investors will need to have some patience with Best Buy's stock. It may not start to rally until discretionary spending picks up again and economic conditions look more favorable.
But based on the stock's forward P/E multiple of less than 13, this can also be an attractive time to load up on it while the market remains bearish. And with Best Buy offering a fairly high yield of 4.8%, investors will also have a good incentive for remaining patient with the stock.
