You don't have to bet the farm, back up the truck, or risk your life savings to start a meaningful stock investment. If all you can set aside for wealth-building right now is $1,000, that's enough to grab several shares of undervalued consumer goods titans Target (TGT -0.56%) and Lululemon Athletica (LULU -0.20%).
Yes, both stocks have fallen significantly in 2024 and 2025. However, I'm not talking about broken businesses here. If anything, both Target and Lululemon look ready for exciting turnarounds.
I can't promise that the potential upside will materialize right away, or that this is the perfect, unbeatable moment to pick up these stocks. But striving for perfection is the enemy of "good," as they say, so I highly recommend taking a chance on Lululemon and Target right about now.
Image source: Getty Images.
Why investors are worried about recent results
It's going to take some work to turn these sinking ships around. I get why the charts are pointing downward.
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Lululemon's formerly terrific revenue growth has slowed down dramatically, from a consistent 30% year-over-year clip in 2022 to 6.5% in the latest report. Meanwhile, the company's free cash flow generation has been shrinking across the last four quarters.
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Target's results have been less predictable, for better or worse. Generally speaking, the growth engines are sputtering while other big-box retailers like Costco Wholesale (COST -0.89%), BJ's Wholesale Club (BJ -2.54%), and Walmart (WMT -1.05%) are thriving.
Valuations look low -- are they too cheap to ignore?
But the bearish market reactions have been too extreme. As of this writing on September 17, Target's stock trades 44% below its annual high and Lululemon shows a 61% retreat from the 52-week peak.
Those are big price dips. As a result, Lululemon shares are available at the tempting valuation of 11.2 times trailing earnings, while Target shares fetch a 10.5 price to earnings (P/E) ratio. These are historically low ratios, and also far below rival retailers. Walmart and Costco sport P/E ratios of 34.5 and 54.5, respectively. In Lululemon's more specialized corner of the retail sector, large clothing vendors like Boot Barn (BOOT -1.39%) and Nike (NKE 6.17%) also sport P/E ratios of 28 or more.
Target's plan: lean into style and "Tar-zhay"
I showed you Target's and Lululemon's spotty results, and the gloomy stock market reaction they inspired. But what are they doing to turn the beat around? I sure wouldn't recommend their stocks if the management teams simply shrugged and did nothing. When the old business plan isn't working anymore, it's time to take bold new steps.
Target is rolling up its metaphorical sleeves. The turnaround effort is focused on the company's unique market position as a nicer shopping experience with high-quality store brands. Management has embraced the cheeky faux-French "Tar-zhay" pronunciation. It's all about "style and design," as CEO Michael Fiddelke kept repeating in August's Q2 2026 earnings call.
That experience doesn't come cheap, and low-cost experts like Walmart and Costco will often offer similar goods at a lower price. But that's OK, because at least you're shopping at "Tar-zhay." The aisles are wider, cleaner, and less cluttered. Getting assistance from an employee should be easier. It's a modestly upgraded experience, worth a slightly higher price.
And this premium approach is already evident in Target's financials. The company generates richer profit margins than any of its big-box rivals, from the price-dependent gross margins to the operating efficiency measurement of net margins.
So I think Target already deserves at least a sector-average P/E ratio, if not more. The stock price you see today is a serious discount.
Lululemon is making its products feel new again
Lululemon is a different story.
The company expected to counter the tentative consumer mood with a large assortment of seasonal colors over the summer. That didn't work as expected. Sales data analysis and shopper surveys showed that new colors weren't new enough -- it takes a larger dose of newness to inspire apparel shoppers in this economy. On top of that, tariff expenses make it harder to deliver great apparel at a reasonable price.
CEO Calvin McDonald admitted that Lululemon's product life cycles look too slow in this context. The whole athletic wear sector is struggling, amplifying the effects of Lululemon's too-familiar product assortment.
So the company is ramping up its development of entirely new gear, way beyond simple color changes.
"When we get our product right, everything else can follow," McDonald said in Lululemon's Q2 report earlier this month. With a fast-track design process and a global network of agile manufacturing partners, the company should have plenty of fresh, new gear on store shelves for the upcoming holiday season.
Like Target, Lululemon charges a premium price for a premium product, resulting in above-average profit margins. Kickstarting the stalled top-line growth should do wonders for Lululemon's swooning cash profits -- and for its plunging stock.
