Target keeps aim on growth

Target (NYSE: TGT), armed with convenient same-day services including curbside pickup and delivery, was a magnet for consumers’ dollars at the outset of the pandemic. Sales at locations open for more than a year soared 19.3% in 2020 and 12.7% in 2021 – incredible numbers for a big-box retailer.

The hangover from this growth began in 2022 and is still continuing. Comparable sales rose by just 2.2% last year, partly due to weakening consumer demand, and slowed further in early 2023. Target’s pandemic-era profitability is also a thing of the past, with operating profit margin coming in at just 5.2% in its first quarter of 2023 – down from more than 9% at times during 2020 and 2021.

While the next few years will likely be challenging for Target, particularly if the U.S. enters a recession, the retailer has laid a solid foundation for long-term growth. Its same-day services are still growing at a healthy clip, for example, reflecting how much people value convenience.

Once Target emerges from this malaise, growth won’t be as impressive as it was during the pandemic’s height, and margins likely won’t be as high. But Target’s stock price now reflects this reality, with a recent forward-looking price-to-earnings (P/E) ratio of 16, below the five-year average of nearly 18. That looks like a reasonable price to pay for long-term investors. (The Motley Fool owns shares of and has recommended Target.)

Ask the Fool

Q. I can’t believe this – is it true that shares of Warren Buffett’s company, Berkshire Hathaway, sell for around $500,000 each? That prices most of us out. – M.M., Waterbury, Vermont

A. Yup, it’s true – but you can still invest in the company if you want.

It’s the Class A shares that are steeply priced – recently near $525,000. But there are Class B shares as well; they recently traded around $345 apiece.

Those $525,000 shares cost around $19 apiece when Buffett took over the company in 1965, so they’ve grown by more than 2,700,000% under his watch.

As he noted in the company’s last letter to shareholders, the overall annual growth rate of its stock price has been 19.8% – versus 9.9% for the S&P 500 (with dividends reinvested).

Clearly, few investors can afford a $525,000 share.

Fortunately, though, Buffett added Class B shares in 1996.

They were initially valued at one-thirtieth of the value of a Class A share, putting their debut price around $1,000.

Then, in 2010, Buffett split the B shares 50-for-1, bringing their price down from around $3,500 apiece to around $70. Today, as noted above, an investor can buy a single share of Berkshire Hathaway for around $345.

Q. Why doesn’t my newspaper include stock listings on Mondays? It’s very annoying. – A.R., Lincoln, Nebraska

A. Since America’s stock markets are closed on weekends, there’s no stock-price action to report on Mondays.

It can be better not to watch your stocks too closely, though. Find great and growing companies, keep up with their progress, and aim to hang on for years or decades – or as long as they hold your confidence.

My Dumbest Investment

My most regrettable investing move was investing in a solar energy company’s stock back in 2009.

I believed that green stocks were the future and took a chance. More than a decade later, the stock still hadn’t recovered to my purchase price.

I sometimes kick myself about it, and sometimes remember that it was just one investment.

But it prevented me from investing more money in the stock market, except for some shares of Apple that I bought around the same time. I’ve learned that I can’t control the stock market, but I can invest in companies that seem to have a great future. – Lisa, online

The Fool responds: You’re right to cut yourself some slack; every investor makes some bad decisions.

Many people still think that green energy has a bright future.

But when an industry or niche grows hot, with many investors salivating and buying, stocks in it can get bid up beyond their intrinsic values – and those who buy in at inflated prices either lose money or have to wait a long time to profit.

The trick is to buy into companies when their shares seem undervalued relative to where you estimate they’ll be in the future.

Meanwhile, investing in Apple was a terrific move!

Since the middle of 2009, Apple stock has increased in value more than 38-fold, averaging close to 30% annually – and that’s without even reinvesting your dividends.