What are Target and Wal-Mart Investors Waiting For?
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There have been a couple of changes since my article from a little over a week ago discussing the merits of Target (NYSE: TGT) and Wal-Mart (NYSE: WMT). Target’s stock price has (finally) risen and Wal-Mart management has increased what was already a solid dividend.
Both changes were and are great news for investors, but here’s the thing – why so little stock price movement since? The news coming from both camps and the fundamentals that made both such tremendous opportunities have done nothing but improve. And yet here we are – Target and Wal-Mart remain the cheapest stocks in the sector even as Costco’s (NASDAQ: COST) recent positive earnings announcement sent the already over-priced stock rising even further.
More Good News
Target recently announced that February same-store sales jumped a whopping 7% for the month – that’s borderline ridiculous. To put that into perspective, of all the stores reporting same-store sales numbers for February the expectation is for about 3.5% growth across the board. Target continues to knock it out of the ballpark but there just don’t seem to be any fans in the stadium to see it. Too bad, they're putting on a show.
Naturally Target is currently trading down for the day and Wal-Mart is flat. Huh? The only explanation is that perhaps investors are heeding the warnings of some analysts who are fearful that by April sales will start to slow due to higher gas prices. And while there is some logic there, it doesn’t explain why Costco is trading at literally twice the multiple of either Target or Wal-Mart. At 13 times earnings the two retail behemoths remain absolute bargains.
Adding to the good sales news was the announcement that unemployment numbers are holding steady at their strongest level in four years. And this comes on top of consistently solid consumer confidence and spending numbers. So what are investors waiting for?
For those interested in dividend yields in these historically low interest rate times, Target and Wal-Mart also offer the best in the industry. Target's 2.14% is certainly nothing to sneeze at, and now with Wal-Mart’s dividend hike to $1.59, shareholders of record on March 12 will enjoy a nearly 2.7% yield. For current investors a bump in dividend is nothing new for Wal-Mart – the company has raised its dividend annually for nearly 40 straight years.
Both companies have increased revenues for several years running, recession or no recession. Both are expanding their offerings, growing their online presence and targeting international expansion to better diversify and be less reliant on U.S. sales. It’s time to get off the sidelines and into the game – you won’t go wrong either way.
The investment opinions included are just that, opinions. Investing involves risk, as you well know, so consider your decisions wisely. Tim holds no position in the securities mentioned in this article.