Is Target Corp. (NYSE:TGT) the Most Undervalued Quality Stock to Buy Now?
We recently published a list of the 11 Most Undervalued Quality Stocks to Buy Now. In this article, we are going to take a look at where Target Corp. (NYSE:TGT) stands against other undervalued quality stocks to buy now.
On February 24, Kayne Anderson Rudnick chief market strategist Julie Biel joined 'The Exchange' on CNBC to discuss her thoughts on how good quality companies can ride out turbulence in the market. Just like Warren Buffett and Charlie Munger, Biel also suggests inaction as an investment principle and believes that holding high-quality companies can help investors deal with market volatility. She emphasized conviction in investing instead of impulsive decision-making. Biel also noted the general resilience of the US economy, which mainly comes from a robust jobs market as it fuels the consumer-driven economy. She also expressed unease over the limited tools available to address a potential recession that could come from high levels of deficit spending. She thinks inefficient businesses should be allowed to fail while protecting employees during economic cycles.
Biel addressed small-cap stocks and explained that they struggle due to their higher leverage and sensitivity to prolonged higher interest rates. They often include significant exposure to real estate and banking sectors and have a high proportion of non-earning companies. She then emphasized that even if one were to invest in small caps, the ideal approach would be to look at high-quality small-cap companies that can yield strong results. Biel's stock picks are quality companies that focus on tangible and physical solutions instead of those with foundations in hyped technologies like AI. While she acknowledged AI's potential, she argued that it's becoming standard and can no longer be categorized as a differentiator.
We sifted through the Vanguard U.S. Quality Factor ETF holdings to compile a list of the top stocks that had a forward P/E ratio under 15 as of April 14. We then selected the 11 undervalued stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A woman purchasing groceries at a Target store, with a cart full of products.
Forward P/E Ratio as of April 14: 10.22
Number of Hedge Fund Holders: 56
Target Corp. (NYSE:TGT) is a general merchandise retailer in the US. It sells merchandise through periodic design and creative partnerships, shop-in-shop experience, and in-store amenities. It sells its products through its stores and digital channels like Target.com. Notably, it's the fifth-largest digital grocer in the US.
Tar-zhay is a term coined by customers for Target's emphasis on affordable and on-trend products. The company's merchandising, or Tar-zhay strategy hinges on a unique product mix, such as a $31 billion portfolio of owned brands. About 25% of these exclusive brands generate at least $1 billion in annual sales. This assortment directly translates to increased customer traffic. For instance, the company saw ~7% sales growth and share gains in its Beauty segment.
The company actively engages with trends, which is highlighted by the record-breaking sales of its Taylor Swift exclusives recently. In January alone, Target Corp. (NYSE:TGT) introduced 2,000 new wellness products, with 600 being exclusive to the company. The company's online marketplace called Target Plus has also grown to a $1 billion business and features more than 1,500 trusted partners and shows double-digit growth.
Overall, TGT ranks 9th on our list of the most undervalued quality stocks to buy now. While we acknowledge the growth potential of TGT, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. 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.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
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