Buying a stock that's down big can come with risks, but not all risks are the same. There are purely speculative plays like meme stocks, and then there are also quality stocks that billionaire investor Warren Buffett loves to buy when they get into "temporary trouble." If you find ones that are in the latter category, you could set yourself up for some terrific gains down the road, without taking on much risk.
One stock that could fit that criteria and which may have tremendous potential is Target (TGT 4.61%). It's been a bit of a forgotten retail stock as its business has faced challenges due to a decline in discretionary spending. Rival Walmart has been the hotter buy in recent years, as its business is less vulnerable to economic slowdowns, with groceries making up a larger chunk of its revenue. However, here's why the underrated dividend stock to own right now could prove to be Target.
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The company's new CEO is making improvements to stores and the overall customer experience
Michael Fiddelke became CEO of Target on Feb. 1, taking over from Brian Cornell. And as a long-term veteran of Target, Fiddelke has many ideas for how to make the business better. The company is in the midst of remodeling 130 stores, launching next-day delivery in 20 new markets, and it's also planning to enhance the digital experience with the help of artificial intelligence.
These may appear to be small, incremental moves for the company, but they can make its stores more appealing to customers, especially the new store layouts, which are a hit with shoppers -- 92% of whom say they are "highly satisfied" with the experience. The company has been attempting to offer more of a one-stop shopping experience with the new layouts and by partnering with Starbucks and CVS Health.
NYSE: TGT
Key Data Points
The stock has already been off to a strong start to 2026, and has more room to run
Year to date, shares of Target are up around 33%. However, on a five-year basis, the retail stock is still down 37%. Target's stock may be trading near its 52-week high, but its price-to-earnings multiple remains modest at 16. By comparison, Walmart trades at 47 times its earnings.
Target looks due for more of a rally as the investments it's making into enhancing its stores and adding value for consumers could pay off significantly. The stock has taken a brutal beating in recent years, but it can provide investors with excellent value today. Plus, it also has a high-yielding dividend that pays 3.5%, giving you plenty of incentive to just buy and hold.
