That’s the case this week with household-name retailer Target (NYSE: TGT).

To get Marc’s take on Target’s dividend, click here.

And to get Anthony’s take on its current valuation, keep reading below.

– James Ogletree, Senior Managing Editor

There’s a strange thing that happens when you become a parent. You start caring about stores you once walked past without a second thought. You know which checkout line is the fastest. You know where everything is. And you know that if you run in for toothpaste, you’ll somehow walk out with a cart full of things you didn’t plan on buying.

That store for many is Target (NYSE: TGT). It’s part of everyday life for millions of families.

But the market doesn’t give out points for mere familiarity. Since early 2024, Target’s stock has slid from above $175 to around $90.

That’s a big drop for a company most of us think of as rock-steady. So the real question is whether this is just a rough patch or a sign of something deeper.

Target reaches nearly 2,000 communities and has become a kind of modern general store. Its same-day pickup and delivery options have turned into a real draw, especially for busy households.

But even a strong brand can’t dodge a strained consumer. Shoppers have tightened up. Traffic is down. Margins are thinner than anyone would like.

The latest quarter reflects that mood. Net sales slipped 1.5% year over year to $25.3 billion. Comparable sales were down 2.7% – mostly because in-store traffic fell – but digital sales grew a bit. Earnings dropped from $1.85 to $1.51 per share, and operating income slid almost 19%.

Still, Target kept returning money to shareholders and now expects full-year earnings between $7.70 and $8.70.

It’s not a disaster. It’s a company pushing through a slow season in the consumer cycle.

When you strip things down to the basics – cash, assets, and consistency – the picture looks clearer.

Target’s enterprise value-to-net asset value ratio sits at 3.74, almost identical to the 3.82 market average. You’re not getting a bargain, but you’re not paying up either.

Where Target still proves itself is in cash generation. Its 6.03% free cash flow-to-NAV rate towers over the 1.12% average. Even in a tough stretch, the company throws off real cash.

Over the last 12 quarters, it grew its free cash flow as often as the typical company in our database.

As you’ve seen, shares have drifted lower for nearly two years and now sit near 2020 levels. Moves like this can tempt bargain hunters, but only when the business is turning a corner.

Target isn’t there yet, honestly. Sales remain soft, margins are still tight, and management is bracing investors for another cautious quarter.

Still, if you shop there often, you know Target hasn’t lost its place in American life.

Good companies sometimes move sideways before they move forward. That’s part of the rhythm of retail. And right now, the market seems to have Target priced about right.

The Value Meter rates Target as “Appropriately Valued.”

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post Target: This Iconic Retail Stock Continues to Miss the Mark appeared first on Wealthy Retirement.

But can investors rely on the hefty yield while they wait for the stock price to recover?

In fiscal 2024, which ended in February, free cash flow actually increased due to a sharp reduction in capital expenditures (or “capex”) despite declining revenue and profits.

Cash flow from operations fell from $8.6 billion to $7.4 billion in fiscal 2024, but a 40% cut in capex boosted free cash flow by 17% from $3.8 billion to $4.5 billion.

In fiscal 2025, which ends this coming February, capex is forecast to rise by more than $1 billion, which will reduce free cash flow to $2.5 billion.

In fiscal 2024, Target paid $2 billion in dividends for a very comfortable payout ratio of 46%. This year, the retail giant is forecast to pay a little over $2.1 billion. With drastically falling free cash flow, the payout ratio jumps to an uncomfortable 87%.

However, Target has an incredible dividend-paying history. It has raised its dividend every year since 1972. I was still watching Sesame Street back then.

Since the company is a member of the S&P 500 and has raised its dividend for more than 25 years in a row, it is considered a Dividend Aristocrat, which is a prestigious label that attracts income investors.

Target’s numbers are all going in the wrong direction. Free cash flow is down over the past three years and is expected to fall sharply this fiscal year. As a result, the payout ratio in fiscal 2025 is now projected to be above my 75% threshold.

It’s becoming more difficult for Target to afford its dividend.

I suspect that the five-and-a-half-decade run of annual dividend increases is pretty important to management and they’re going to do what it takes to continue to boost the payout to shareholders.

But if free cash flow continues to deteriorate, Target may have a tough decision to make regarding that very long and impressive dividend-hiking track record.

I don’t suspect a dividend cut is imminent, but given the company’s cash flow situation, the payout can’t be considered safe – even for a Dividend Aristocrat.

Dividend Safety Rating: D

What stock’s dividend safety would you like me to analyze next? Leave the ticker in the comments section.

You can also take a look to see whether we’ve written about your favorite stock recently. Just click on the word “Search” at the top right part of the Wealthy Retirement homepage, type in the company name, and hit “Enter.”

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds, or closed-end funds.

The post Is This Dividend Aristocrat’s Payout in Jeopardy? appeared first on Wealthy Retirement.

The stock’s journey over the past year tells an interesting tale. After peaking near $245 in late 2021, shares tumbled about 60% to around $100 by the fall of 2023 as consumers pulled back on discretionary spending.

More recently, though, the stock has rebounded, reflecting growing investor confidence in retailers.

Let’s examine whether Target represents a good value at current prices by looking at two key metrics.

First, let’s consider the company’s enterprise value relative to its net assets (EV/NAV), which currently sits at 5.39. That’s notably lower than the average of 7.33 among companies with positive net assets. That means you’re paying less for each dollar of Target’s assets than you would for the typical company.

But value investing isn’t just about buying cheap assets – it’s about finding companies that can efficiently turn those assets into cash.

Target has generated positive free cash flow in each of the past four quarters, with its quarterly free cash flow averaging 8.45% of its net assets. That’s slightly better than the 7.9% average among companies with similar cash flow patterns, telling us Target is more efficient than its peers at converting assets into cash.

The company’s third quarter results reinforce both its strengths and its challenges. While guest traffic grew 2.4% and digital sales surged 10.8% during the quarter, operating income fell 11.2% to $1.2 billion due to higher costs. Beauty remained a bright spot with more than 6% growth, while food and essentials saw modest gains.

Management’s outlook appears cautiously optimistic. They expect flat comparable sales in the fourth quarter but maintain their full-year adjusted earnings per share guidance of $8.30 to $8.90. Meanwhile, the company continues to make operational improvements, with its average delivery time now nearly a day faster than it was last year.

When we weigh all these factors, Target’s current valuation looks appropriate. The stock isn’t expensive enough to avoid, but it’s not cheap enough to make it a compelling buy. At $130 per share, you’re paying a fair price for a well-run retailer that’s generating $25.7 billion in quarterly revenue and has a clear strategy for navigating today’s challenging retail environment.

The Value Meter rates Target as “Appropriately Valued.”

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post Is It Time to Take Aim at Target Stock? appeared first on Wealthy Retirement.

Over the past two years, the SPDR S&P Retail ETF (NYSE: XRT) is down almost 40%…

So this is a good place to find some compelling bargains.

But instead of going dumpster diving and digging out the absolute cheapest retailers, I’m more interested in buying the really good companies that are going to be long-term winners.

Let’s Hit the Bull’s-Eye

Target (NYSE: TGT) released earnings on November 15, and the market loved what it saw!

The stock price surged by over 17% for the day.

Investors were excited about Target’s operating margin increasing from 3.9% to 5.2%.

The company is in the early stages of reducing costs, and clearly, the plan is working.

Despite the big surge on earnings, though, Target shares are still down 13% for the year and down almost 50% from where they traded two years ago.

I think the market is underestimating where Target is headed. I believe more margin expansion is coming thanks to additional cost-saving initiatives.

Target has also built a great real estate position. Almost every American lives within 10 miles of a Target location.

The company has transformed itself from a big-box store to a one-stop shop that offers everything from household goods to clothes to groceries.

And the stock is a true dividend champion.

It yields a juicy 3.39% as I write…

But much more importantly, the company has increased its dividend for 50 consecutive years!

The consensus analyst estimate is for Target to earn $8.34 per share in 2025.

That would mean the stock is currently trading at around 15 times its projected 2025 earnings.

That is a more than reasonable price to pay for this dividend grower…

But I expect Target’s earnings to beat expectations again as margins continue to improve.

If I’m right, then the stock is even cheaper than it currently appears. For that reason, The Value Meter rates Target as being “Slightly Undervalued.”

There’s No Place Like Home (Depot)

Home Depot (NYSE: HD) is a stock you can buy and hold for the long, long, long term!

The company has a dominant position in the North American home improvement market and a tremendous protective moat around its business.

That moat was created by Home Depot’s huge scale, which allows the business to have a powerful low-cost position, the widest product offerings and a strong loyalty program.

The company’s incredible long-term stock performance serves as proof of its brand strength.

This is one of the best-performing stocks of the past three decades.

But what I really love about Home Depot is its ability to return cash to shareholders.

Over the past five years, Home Depot has returned $70 billion to shareholders by way of dividends and share repurchases.

And I expect that number to be even larger over the next five years.

The dividend yield is around 2.72%, and like Target, Home Depot has a long track record of consistently increasing its dividend.

As of today, Home Depot trades at a price-to-earnings (P/E) ratio of just under 20.

That isn’t a table-pounding bargain, but it’s a fine valuation for a company that has compounded shareholder returns for decades.

And even though this juggernaut is a leader in the home improvement space, its market share is still just under 20%, so it has plenty of growth ahead of it.

The Value Meter rates Home Depot as being “Slightly Undervalued.”

Learn From My Mistakes

With a P/E ratio of 36, Costco (Nasdaq: COST) certainly doesn’t look cheap.

Sadly, my inability to recognize that Costco was still a bargain at high earnings multiples cost me terribly in the past.

Getting hung up on Costco’s P/E ratio has kept me out of this incredible stock on more than one occasion… and I won’t make that mistake again.

What I’ve finally realized about this great company is that it still has decades of growth in front of it.

And paying a higher price for long-term growth is worth it.

Despite the stock’s long-term performance, however, Costco’s management team has been extremely disciplined about its growth.

Costco has grown slowly and responsibly…

And it can keep growing slowly and responsibly.

While there are more than 4,600 Walmart stores in the United States, there are only 590 Costco locations.

I’m not saying that there will ever be 4,000-plus Costco locations in the U.S., but I certainly believe that the company could double or triple its store base.

Plus, with fewer than 300 international locations, Costco still has an entire world to expand into.

Location growth alone could drive Costco’s earnings higher for decades to come.

I also see huge leverage in Costco’s ability to increase net income with just minor increases to its annual membership fee.

In its last full fiscal year, the company posted net income of just under $6.3 billion, and a remarkable $4.6 billion of that came from membership fees.

Costco has not increased its annual membership fee for more than six years, and I believe it could see a significant jump in net income when it does finally raise the fee.

The great Warren Buffett is fond of saying that it is much better to buy a great company at a fair price than to buy a fair company at a great price.

And Costco is one of the greatest businesses in the world.

Even at Costco’s current valuation, I think it is a wonderful long-term bargain. The Value Meter rates Costco as being “Slightly Undervalued.”

If you have a stock that you’d like to have rated by The Value Meter, leave the ticker symbol in the comments section.

The post 3 Retail Stocks Set for a “Black Friday Boost” appeared first on Wealthy Retirement.

Target pays a $1.08 per share quarterly dividend, which comes out to a 2.65% annual yield.

So will the dividend walk out the door along with the stolen merchandise?

Free cash flow in fiscal 2023 (ending January 31, 2023) is expected to be more than cut in half, dropping to $2.27 billion from $5.08 billion. It is forecast to recover in fiscal 2024 (ending January 2024), though still not to the level that it was at in fiscal 2021.

If fiscal 2023’s free cash flow comes in at $2.27 billion – where it is expected to be – and dividends paid also matches projections at $1.73 billion, then the payout ratio will be above 76%, which is not in my comfort zone. I like to see payout ratios of 75% or lower. That way, there is still room for the company to pay the dividend even if free cash flow declines further.

Safety Net penalizes companies that have falling free cash flow and a payout ratio above 75% – so those things are concerning.

On the other hand, Target has an incredible track record when it comes to paying and raising its dividend. The company has lifted the dividend every year for 54 years.

It was the “Summer of Love” when Target started raising its dividend. Richard Nixon was president. “Build Me Up Buttercup” by The Foundations was the No. 1 song in the U.S., and the top movie was Funny Girl with Barbra Streisand. That was a long time ago, and it’s impressive that Target has consistently raised its dividend every year since 1969.

Given that amazing history, I don’t expect the dividend to be cut anytime soon, despite the mediocre dividend safety rating. I think management will run through fire to preserve it.

That being said, the financials are deteriorating, so it’s worth keeping an eye on. The dividend isn’t likely to be reduced in the near future, but if free cash flow doesn’t recover next year, we’ll have to revisit it.

Have a wonderful Thanksgiving. I’m thankful that you’re a Wealthy Retirement reader. Enjoy the holiday.

Dividend Safety Rating: C

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker in the comments section.

Good investing,

Marc

The post Can Target Afford Its Dividend After Putrid Earnings? appeared first on Wealthy Retirement.

Long term, demographics practically ensure that the sector will remain healthy (pun intended) for years to come. On average, some 10,000 baby boomers turn 65 every day. A few decades from now, when the baby boomer population has dwindled, the next large population group (millennials) will be middle-aged.

Short term, few sectors have the ability to produce such strong gains as healthcare, particularly small cap biotechs. But with these types of companies, it’s easy to break one of investing’s cardinal rules: Don’t fall in love with a stock.

My brother works in the movie industry. Sometimes he’s under a lot of pressure. When he feels stressed, he reminds himself, “You’re either curing cancer or not curing cancer.” In other words, people won’t die if his project isn’t successful.

When you invest in small cap biotech stocks, you’re often investing in companies that are trying to cure cancer, diabetes or a rare but fatal disease. The work that these companies do is important.

If you buy shares of a stock like Target (NYSE: TGT), of course you want the company to prosper. And if Target’s sales are strong, it will employ more people and help grow the economy. All good things. But let’s face it, you probably don’t get that excited about the same-store sales report each month.

But when you invest in a small biotech, it’s different. It’s easy to become emotionally attached.

For example, consider a company like TG Therapeutics (Nasdaq: TGTX), which is developing therapies for treating leukemia. You want the company to succeed, not only for your own monetary gain but because of the impact it could have on tens of thousands of lives.

If things go wrong with some of these companies, like when their drug is rejected by the Food and Drug Administration or their clinical trial data is weak, investors often make excuses and justify why they should stay in the stock, even if they have a large loss and the medical studies say the drug clearly doesn’t work.

And when things go right, they can go right in a hurry.

Last January, Novavax Inc. (Nasdaq: NVAX) spiked 64% in one day on news that a clinical trial showed that its COVID-19 vaccine was safe and effective. A few days later, the stock was 148% higher than where it was before the announcement.

Investors who were able to ride the stock to its new high should have checked their emotions at the door and set a trailing stop.

I recommend a 25% trailing stop on most stocks. That means, as the stock goes higher, you adjust your stop higher. When Novavax hit its high at $331.68, an investor who set a 25% trailing stop would have gotten out at $248.76, saving themself about 86 points in regard to where it’s trading today.

It would have been easy to get caught up in the emotion of rooting for a company that is developing a vaccine during a pandemic. It makes sense to cheer for a product that can be beneficial to so many people.

But setting a stop 25% below the high would have taken the emotion out of the trade and forced the sale of the stock at $248.76. Even if the investor was very hopeful that the vaccine was going to save lives and be the next big thing in fighting this pandemic, the stop would have taken them out of the position and saved them a lot of pain when Novavax fell below $250 and then $200.

Using a stop removes the emotion from investing, which is always important – but especially so when investing in an emotional sector like biotech.

Good investing,

Marc

The post Emotions Wreak Havoc on Healthcare Investments appeared first on Wealthy Retirement.

ESG (environmental, social and governance) investing, a descendant of ethical investing, isn’t just for hippies and optimists anymore…

In fact, as Chief Income Strategist Marc Lichtenfeld uncovers in this week’s episode of his YouTube series State of the Market, ESG investing has gone mainstream…

So much so that it now accounts for one-third of all managed U.S. investments.

That’s because ESG strategies aren’t just good for the environment, good for workers and good for leadership – they’re also good for business.

Just look at how funds of companies that focus on these principles stacked up against the broader S&P 500 during the coronavirus crash…

Many of them trounced the broader market, some of them even soaring close to 20% amid one of the most devastating market events in history.

The data shows that initiatives like climate-friendliness, fair treatment of workers and executive suite diversity aren’t just “nice to haves” in 2020.

Instead, experts are wary of the risks of not implementing these strategies.

As Marc explains in this week’s video, “Companies that are conscientious about the environment are less likely to have big spills or leaks, less likely to pay fines for running afoul of regulations, and more likely to have technology that saves money over the long term.”

And the benefits for investors don’t stop with the stock market…

In 2016, Barclays found that bonds of companies that prioritize ESG principles perform better.

They appreciated in price and avoided credit downgrades more often than their low-ESG counterparts.

This week, Marc reveals three companies that score highly on ESG rankings…

But you can also check your portfolio’s ESG risk for yourself.

MSCI has pioneered the ESG Ratings Corporate Search Tool that investors can use to check how the companies they invest in manage issues that are important to the world today.

For instance, I looked up popular consumer goods holding Target (NYSE: TGT).

I discovered that on a score ranging from CCC to AAA, the company has been able to improve from a score of BB to a score of A in just four years.

That places the company in the middle of its industry peers.

According to MSCI, while the company leads in areas like chemical safety and corporate behavior, it falls behind in labor management.

Consider using the tool to check the ESG ratings of your own holdings – because as this year has shown, it is more important for companies to adhere to these principles than ever.

And as always, don’t miss Marc’s groundbreaking weekly State of the Market video. This week, he’ll discuss why ESG has become popular…

How it stacks up against the broader market…

And what three companies he tracks have the best ESG scores.

Click here to see Marc’s latest video now.

Good investing,

Mable

The post Why It’s Time to Consider ESG Investing appeared first on Wealthy Retirement.

When you invest in Target, you want the numbers to be strong. Maybe, if you’re altruistic, you’re hoping that growing earnings will lead to more hiring and a stronger economy.

Investing in biotech is different. The financials matter, but in many cases, the companies are early stage and don’t have any products on the market yet, so revenue and earnings are nonexistent.

Some biotech investors end up investing in a company because they’re familiar with the disease the company is trying to treat. Someone whose loved one has lung cancer may discover a drug being studied for the disease and invest in the company developing it.

That person has a much stronger emotional tie to the stock than someone who hopes Target beats analysts’ estimates.

Even without such a direct connection, it’s a pretty callous person who cares about only the stock going up and doesn’t root for the drug to work in order to help patients.

As a result, investors often build emotional ties to their biotech stocks. It’s not unusual for investors to be “in love” with one of their stocks, but it’s especially common in biotech.

Who doesn’t want to see the success of a drug that helps patients with rare diseases, cancer, pediatric illnesses and many other conditions?

It’s never a good idea to let your emotions control your decision-making when it comes to investing. It’s the easiest way to lose money because you’re hesitant to sell and cut your losses even when the evidence points to the drug not working or the stock going lower.

Here are a few tips to make sure you don’t let your emotions get the best of you when investing in biotech.

You’re Not Part of the Solution

Unless you’re buying an IPO and the money is going directly to the company for research (see why I don’t like biotech IPOs here), you’re not actually helping the company forward its studies.

When you buy shares of a biotech (or any other stock) on the open market, you’re buying the shares from a third party. The money you pay goes into its pocket, not the company’s.

It’s true that you’re now a part owner of the company, but as a tiny shareholder, you will have no impact on the company’s ability to treat a disease or develop drugs.

Forget Hope

That sounds bleak, I know, but the hope that a company will cure a dreaded disease, especially one that affects someone you care about, is a terrible reason to make an investment. You need to evaluate a company based on its merits, not on what you hope it can do for a loved one.

You wouldn’t buy shares of Target because you hope its fall apparel selection will make someone you know look good. Don’t buy a biotech stock hoping that its drug will help someone you know.

Set a Stop

At The Oxford Club, we recommend setting 25% trailing stops. That way, your loss won’t be too big if things don’t work out, especially if you follow our position sizing guidelines of never investing more than 4% of your capital in one position. And when you raise the stop as the stock rises, you can ensure you’ll get out with a profit if things reverse.

Most importantly, a stop is set without emotion. And the trade to sell is also executed without emotion. It eliminates the natural tendency to justify why you should hang on to the stock rather than sell it.

All this being said, I know of no other sector with the potential for the huge gains that biotech has. Many people have been made millionaires by owning stocks like Regeneron (Nasdaq: REGN), Celgene (Nasdaq: CELG) and AbbVie (NYSE: ABBV).

And quick explosive gains can be made in smaller biotech names. For example, last week, Viking Therapeutics (Nasdaq: VKTX) spiked 87% in one day on positive clinical trial data. Last month, Affimed (Nasdaq: AFMD) soared as much as 256% after signing a partnership agreement with Genentech.

The biotech sector can be a very lucrative place to invest. Just be sure when you’re entering a position in a biotech stock that you are doing so because you have a valid reason to expect a profit, not because you want so badly for it to succeed.

Good investing,

Marc

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