In this article, we will look at the 7 Cheap Reliable Stocks to Invest in. Let’s look at where Target Corporation (TGT) stands against other cheap reliable stocks.
Overview of the American Retail Segment
Retail sales in the United States rose unexpectedly in August. According to a report by the Commerce Department, retail sales rose considerably faster than analysts’ estimates from July. They increased 2.1% year-over-year in August, with online sales rising 1.4% after falling 0.4% in July. In addition, gasoline station sales fell by 1.2%, reflecting lower pump prices. When combined with a decreased unemployment rate, this retail landscape caused the Federal Reserve to issue a half-percentage-point interest rate cut.
While auto dealerships experienced a decline in receipts, strength in online purchases balanced the level, suggesting a solid footing for the economy through the most part of Q3 2024. After the data, the Atlanta Fed raised the Q3 2024 GDP growth estimate from 2.5% to 3.0% annualized rate estimate. The economy grew at 3.0% in Q2.
Holiday Outlook For US Retailers
Sales in the holiday season typically account for more than half of the annual revenue of US retailers. According to estimates by the Boston Consulting Group, US retailers will likely see a “measured” holiday cheer in the upcoming holiday season. Although signs like cooling inflation point to strong consumer spending, several other factors are likely to take a toll on overall spending.
According to a Challenger, Gray & Christmas report, US retailers are likely to hire fewer holiday workers this holiday season compared to 2023. A softer labor market and uncertain consumer spending trends are the primary drivers behind this trend. In addition, a Deloitte forecast revealed that US holiday sales will likely grow at their slowest rate in six years. Depleting savings is making shoppers more conscious this holiday season.
The 2024 Holiday Outlook Survey by Boston Consulting Group shows that while 28% of consumers plan to increase their spending compared to 2023, 27% plan to decrease it. 45% plan to spend the same amount. There are reasons behind these split trends. Real consumption has continued to increase post-pandemic, with household incomes and balance sheets getting strong in American households. In spite of these positive growth indicators, global military conflicts, ongoing geopolitical tensions, and the upcoming 2024 presidential elections are painting an environment of split attention for consumers.
Despite its recent cooling, inflation has resulted in high consumer staple prices, restricting budgets for holiday shoppers. These trends are also leading to increased inclination towards deal-seeking and intentional channel selection.
Our Methodology
We first consulted stock screeners from Finviz and Yahoo Finance, along with online rankings, to create an initial list of 15 publicly traded retail companies with a forward P/E ratios of less than 23 (the broader market is trading at a forward P/E of 23, as per data from WSJ). From this list, we selected the 7 stocks with the highest number of hedge funds holders as of Q2 2024, and used that as our ranking metric.
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).
7 Cheap Reliable Stocks to Invest In
Target Corporation (NYSE:TGT)
Forward P/E: 16.31
Analysts’ Upside Potential: 16.08%
Number of Hedge Fund Holders: 52
Target (NYSE:TGT) is a popular American retail corporation that operates a chain of discount department stores and hypermarkets with a comprehensive list of offerings, ranging from clothing and groceries to electronics, entertainment, sports, and other general merchandise. It currently operates around 2,000 stores across the country, with expansion plans to add 300 new stores to the chain in the coming decade. It opened four new stores in Florida, South Carolina, and Texas in August alone.
The stock currently trades at a forward P/E of 16.31 at a 8.94% discount to its sector. It sports a consensus Buy rating among analysts, with its current average price target of $155.07 implying an upside of 16.08% from current levels. The company is focusing on strong execution and retail fundamentals. It is expanding its operating margin rate, intending to move beyond its pre-pandemic annual rate of 6%. In addition, Target (NYSE:TGT) is prioritizing continued disciplined capital deployment.
Target (NYSE:TGT) is running on strong fundamentals. Its Q2 comparable sales grew by 2% at the top end of its guidance range. Its EPS of $2.57 was also higher than its guidance, representing more than 42% growth from 2023. This growth was driven primarily by traffic, highlighting the benefits of its several guest-focused initiatives.
In addition, Target’s (NYSE:TGT) store and digital channels also experienced growth in Q2. It experienced single-digital growth in its digital comps, and even faster growth in same-day services led by Target Circle 360 and Drive Up. Target’s (NYSE:TGT) same-day services give it a competitive advantage, accounting for over two-thirds of its digital sales. Drive Up remains the most significant contributor, generating sales of more than $2 billion in Q2 and more than $4 billion so far in 2024.
Carillon Eagle Growth & Income Fund stated the following regarding Target Corporation (NYSE:TGT) in its Q2 2024 investor letter:
“Target Corporation’s (NYSE:TGT) sales continue to feel the consumer softness in discretionary goods. In addition, while margins are recovering, they are not up to expectations. Encouragingly, sales are sequentially increasing, and comparable sales are expected to get easier as Target enters the back half of the year.”
Overall, TGT ranks 3rd among the cheap reliable stocks to invest in. While we acknowledge the potential of TGT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher 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 at Insider Monkey.
