We recently compiled a list of the 10 Best Defensive Stocks To Buy Now. In this article, we are going to take a look at where Target Corporation (NYSE:TGT) stands against the other defensive stocks.
Defensive stocks tend to remain stable and less affected by economic downturns. These companies operate in sectors that provide essential goods and services, which people need regardless of the economic climate. Defensive stocks mostly include stocks of companies among utilities, consumer staples, and healthcare sectors as they provide basic necessities of life. Companies in these sectors often show less volatility, and often provide steady dividends. They usually offer a safer investment choice during periods of market uncertainty.
US Stocks Surge But Experts Remain Cautious
U.S. stocks are having a great time, which is owed to strong economic data that has reassured investors. The S&P 500 and Nasdaq 100 have seen significant gains, as they are up 4.3% and over 6% over the last 5 days on August 15, respectively. The global markets have also recovered from recent losses, and the US broader market is back from the losses it faced in the first week of August. The investor sentiment remains strong and U.S. equities are seeing continuous inflows. Additionally, Fed officials are hinting at potential rate cuts which support optimism that the U.S. economy is on track for a soft landing.
However, some experts are still concerned about the future of the US economy and markets and hold a more conservative view. According to a July report by J.P Morgan, recent market trends have benefited large, high-quality companies, especially in tech and AI, which have resulted in high market concentration. However, maintaining this momentum in the second half of 2024 could be difficult due to high valuations and investor positioning. The report says that while U.S. market volatility is currently low, it could rise if conditions change.
According to Bruce Kasman, global growth is steady at 2.4%, with improved recoveries in Western Europe and emerging markets, along with a rebound in the manufacturing sector. Despite this, core global inflation is projected to remain around 3% in 2024, which could limit the potential for policy easing. Kasman warned that achieving inflation control and rate normalization might weaken demand and could interact with political factors to cause further inflation and central bank tightening.
Leon Cooperman’s Perspective on the Current Conditions
On August 15, Omega Advisors chairman and CEO, Leon Cooperman shared his perspective on the current economic outlook with CNBC Money Movers. Cooperman expressed a cautious outlook on the economy, which is driven by two main factors. First, he is alarmed by the rapid increase in the U.S. national debt, which has doubled from about $17 trillion in 2017 to approximately $34-35 trillion today. He said that this level of debt growth, which outpaces economic growth, is unsustainable and could lead to a fiscal crisis. However, the exact timing of such a crisis is uncertain. He further added that neither political party is addressing this looming issue.
Secondly, Cooperman compared today’s market conditions to past periods of financial excess, such as the Nifty 50 era in the 1970s, when companies with extremely high valuations eventually went bankrupt. He noted that during those times, the 10-year bond yield was 6.5%, much higher than the current rate of around 3.9%. He believes that if the current bond rate is appropriate, market valuations aren’t too high. However, he suspects that interest rates are too low and anticipates a rise in long-term rates, particularly the 10-year Treasury yield.
While he expects the Federal Reserve to cut short-term rates, which could ease borrowing costs, he believes long-term rates will increase, leading to a decline in bond prices and potentially putting downward pressure on stock valuations. If long-term rates rise significantly, it could make the stock market less attractive and could possibly result in a market decline.
Even though the current year has shown healthy markets with a couple of corrections, Leon Cooperman’s expectations from the markets cannot be ignored. Cooperman has a track record of being one of the most successful investors of the past several decades. If they hold out to be true, investors might look toward more defensive sectors of the market.
Our Methodology
For this article, we used stock screeners to identify over 50 large to mega-cap stocks from defensive sectors such as consumer staples, utilities, and healthcare. We narrowed our list to 10 stocks with positive analyst sentiment and the highest average analyst price target upside as of August 16.
A woman purchasing groceries at a Target store, with a cart full of products.
Target Corporation (NYSE:TGT)
Stock Price as of August 16: $141.12
Average Analyst Price Target Upside as of August 16: 25.14%
Target Corporation (NYSE:TGT) is a prominent American retailer known for its extensive network of large discount department stores as well as its smaller-format stores, which include TargetExpress and CityTarget.
As one of the major retailers in the U.S., the company manages more than 1,900 locations nationwide. Its stores offer a wide variety of products ranging from household essentials and furniture to electronics, clothing, toys, and groceries. It features a broad assortment of items under both national and private-label brands. Among its more than 45 private labels are brands such as Good & Gather, Market Pantry, and Dealworthy, among others.
36 analysts have covered Target’s (NYSE:TGT) stock a Buy rating and as of August 16, the average price target of $176.60 has an upside of 25.14% from the present levels. The stock is among our best defensive stocks to buy now.
In recent years, Target (NYSE:TGT) has worked to improve its product offerings by forming exclusive partnerships and expanding its brand lines. The company has also improved its digital and omnichannel capabilities, alongside efforts to boost customer loyalty through revamped programs. These initiatives are designed to cultivate customer retention and strengthen sales in a competitive retail market.
In the first quarter, the company reported a 3.1% drop in total revenue compared to the previous year, largely due to weaker same-store sales. However, digital sales showed a modest increase of 1.4%, driven by nearly 9% growth in same-day services. The “Drive Up” feature, which allows customers to pick up their orders without leaving their car, saw a noteworthy 13% rise in sales.
Furthermore, EPS for the quarter was $2.03, slightly below the previous year’s $2.05 but within the forecast range of $1.70 to $2.10 set by management. The relaunch of the Target Circle loyalty program in April has been successful, adding over 1 million new members and reflecting strong engagement with the brand.
On August 7, Wells Fargo analyst Edward Kelly lowered the price target on Target’s (NYSE:TGT) stock to $160 from $175 and kept an Overweight rating. The firm anticipates a solid performance in the upcoming quarter, supported by achievable goals and ongoing margin improvements, although it noted potential challenges in the second half of the year due to broader economic conditions and consumer trends.
Overall, Target’s (NYSE:TGT) efforts to enhance its product mix, improve digital services, and engage customers more deeply position it well for future growth, which makes it a possibly appealing option despite some near-term uncertainties.
Overall TGT ranks 6th on our list of the best defensive stocks to buy. 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.
