We recently compiled a list of the 10 Most Undervalued Quality Stocks To Buy According To Analysts. In this article, we will look at where Target Corp. (NYSE:TGT) ranks among the most undervalued quality stocks to buy according to analysts.
Are More Rate Cuts Necessary to Maintain The Current Economic Trajectory?
Despite global uncertainties, the US economy is viewed as stronger than its international counterparts. But then again, market challenges are undeniably persisting, and strategists are inclining toward one opinion or the other to help investors build a stronger portfolio for the rest of the year.
In such volatility, quality stocks with reliable earnings offer potential opportunities for risk-averse investors. Interest rates are currently high, but there is potential for significant gains if they decline. As current economic indicators support a favorable environment for growth and income generation, we covered a conversation from CNBC in our 10 Best Quality Stocks to Buy According to Analysts article, where the Global Investment Strategist at ProShares Advisors, Simeon Hyman, emphasized ‘income’ as a key focus, highlighting that fixed-income markets could provide 10-15% returns if geopolitical tensions worsen. Here’s an excerpt from that article:
“…the yield on the 10-year bond is nearly 4%, and there is potential for it to drop to 3% or lower if significant negative events occur. This scenario presents an opportunity for investors to realize gains of 10% or 15% on bonds in a tumultuous environment, a situation not seen in over a decade.
Despite the current market being down by 3.7%, which is slightly less than 4%, Hyman insisted that rounding was at play… there has been a 50-basis point cut and indications of a soft landing for the economy. A month-over-month increase of just 0.1% suggests that if one can overlook geopolitical issues, the US economy is faring better than many others globally and remains on solid economic footing.”
Richard Fisher, Jefferies’ senior advisor, joined ‘Closing Bell’ on CNBC on October 1 to discuss the Fed’s recent rate cut and what it means for the market from here. The former Dallas Fed Chair Richard Fisher shared his insights on the current state of monetary policy and the Fed’s approach to interest rate cuts, noting that he was not surprised by Chair Powell’s signals indicating smaller rate cuts are forthcoming. Fisher explained that he had been bullish since the end of 2023, despite initially predicting a recession that did not materialize. He emphasized the importance of measured cuts, stating that the Fed is looking at monetary policy with a long-term perspective, roughly 18 months out.
He highlighted the significance of recent economic data, particularly from the Atlanta Fed, which indicates strong growth above 3%. Fisher characterized the current economic environment as experiencing neither a soft landing nor a hard landing, but rather a smooth glide path. He believes that two more quarter-point cuts would be appropriate to maintain this trajectory. When discussing concerns about whether current rates are too restrictive relative to inflation, Fisher disagreed with the argument and pointed out that financial conditions remain accommodative, citing narrow spreads and strong private lending activity. He argued that with another two cuts, the Fed would not be overly restrictive.
Despite acknowledging Powell’s effective leadership, Fisher maintained that it was premature to declare victory regarding economic stabilization. He believes Powell’s term will continue until April 2026, and only then can a true assessment of success be made. Overall, Fisher’s emphasis on measured rate cuts and ongoing economic strength underscores the delicate balance policymakers must maintain in fostering growth while managing inflationary pressures.
This could have a positive impact on the stock market, especially for undervalued quality stocks. When interest rates fall, investors often shift their focus to equities as they seek higher returns. This could lead to increased demand for undervalued quality stocks, potentially driving up their prices. In that context and given Fisher’s cautious optimism, we’re here with a list of the 10 most undervalued quality stocks to buy according to analysts.
Methodology
To compile our list, we first sifted through Vanguard U.S. Quality Factor ETF holdings to find the ones with an upside potential of over 15% as of October 7, 2024. We then selected stocks with a forward P/E ratio under 15 and made a list of 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of their analysts’ upside potential.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Target Corp. (NYSE:TGT)
Average Upside Potential: 17.74%
Forward Price-to-Earnings Ratio: 14.6
Number of Hedge Fund Holders: 52
Target Corp. (NYSE:TGT) operates a chain of discount department stores and hypermarkets and is one of the largest American-owned private employers in the US. It offers products like clothing, electronics, home goods, and groceries, and is known for its convenient store locations, competitive prices, and a focus on providing a positive shopping experience. It also offers online shopping and in-store pickup options for added convenience.
Revenue increased by 2.75% in FQ2 2025, driven by increased traffic. The company earned $2.57 per share in this quarter. Digital sales, particularly same-day services like Target Circle 360 and Drive Up, grew significantly. These services contribute most of digital sales and give the company an advantage. Drive Up sales exceeded $2 billion in Q2 and $4 billion for the year. Clothing sales increased by 3%.
Target Circle gained 2 million new members, reaching 100 million total members. A July promotion added many new cardholders and Target Circle 360 members. Target Corp. (NYSE:TGT) donated $2.5 million to disaster relief efforts, including support for the Red Cross and Team Rubicon after Hurricane Beryl.
Earlier this year, the company integrated GenAI into the handheld devices in its stores, providing its team with rapid access to best practice documentation and the ability to quickly receive straightforward responses to common customer questions. It recently released its 2024 Bullseye’s Top Toys list, featuring over 60 must-have items, many exclusive to Target Corp. (NYSE:TGT).
While the ongoing port strike presents challenges for many retailers, particularly those with a high reliance on imported goods, the potential for increased market share and pricing power for domestically focused businesses presents a bullish opportunity. The potential for price hikes due to the strike could benefit retailers with pricing flexibility and the ability to maintain margins.
Diamond Hill Large Cap Strategy stated the following regarding Target Corporation (NYSE:TGT) in its Q2 2024 investor letter:
“Other bottom contributors in Q2 included CarMax, Target Corporation (NYSE:TGT) and ConocoPhillips. US-based mass retailer Target faces concerns about a slowing consumer discretionary spending environment, which weighed on shares in the quarter.”
Overall TGT ranks 6th on our list of the most undervalued quality stocks to buy according to analysts. While we acknowledge the potential of TGT as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TGT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published on Insider Monkey.
