Big Lots, Inc.

Dollar General Corp.

Dollar Tree Inc.

Meta Platforms, Inc. Class A Common Stock

The Kroger Co.

Ollie's Bargain Outlet Holdings, Inc. Common Stock

Target Corporation

Walmart Inc.

When I find strong financial companies with a track record of stability, well managed, while trading at attractive valuations, I add them to a watchlist to keep tabs. When the market creates opportunities to buy these “like, not love” type of businesses, due to massive over reactions to short-term bad news, I take advantage of it. I’m not big on slim profit margins or businesses that are resource/capital intensive (think Honda & WalMart for example). So Target isn’t the normal type of company I add to my portfolio as a long-term hold; even though valuation, growth, and managerial efficiency are outstanding, and they’re a dividend king, with 54 consecutive years of dividend growth. These contrarian positions, betting against the crowd who thinks Target is only worth 75% of what it was the day before, has proven wildly effective in the past. As long as that drop offers a buying opportunity at fair value or with a margin of safety, and long-term prospects haven’t changed, it’s a go in my mind. On the rare occasion quality blue chips that meet these standards drop 25% in one session, I am taking advantage of the insanity, every single time. The more irrational, the stronger my reaction. These buys are usually meant to be shorter-term plays, 6-12 months, or until the market corrects its inefficiency. Initially I was buying good companies I planned to hold and thought I was getting rock bottom entry level prices. As quality standards have changed, I wouldn’t buy and hold what I once would, but I will take advantage of any opportunity in which I think I can make my money earn more money. 

This is not a strategy I developed from any particular source, just accumulated knowledge of human behavior/overreaction in the markets and watching for easy swing trade opportunities. Still, as always, company has to be quality first. A crappy company dropping 25% overnight isn’t irrational, it may be well deserved. But a company like **$FB** & **$TGT** falling 25% overnight,  due to short-term negatives (IMO meaningless, due to my long-term thesis) makes zero sense. This drop of ~25% left them at very attractive valuations and has created a high probability opportunity to outperform the market, with minimal risk of downside (it already dropped 25% from a price that represented close to fair value). It’s not a one size fits all rule, but after enough time in the market, “irrational” investor emotion/behavior really sticks out. Also helps grasp what is over and under valued and when. Currently, comparing Target to a few “quasi” comps, they look better than **$DG**, **$DLTR**, **$WMT**, **$OLLI**, **$KR**, and **$BIG** on almost every area of comparison. Ollie’s has SLIGHTLY higher growth rates & profitability margins, but falls so short in every other category, it’d be silly to go with them over Target. Of those retailers mentioned, only Big Lots is trading at cheaper valuations. Target looks the best to buy from that short list. I truly don’t understand when a company with 54 years of consecutive dividend increases, has superior 1, 3, & 5 year growth, ROE, ROA, and ROTC, similar or at least adequate profitability margins, and is trading at even cheaper valuations. I’ve always watched **$WMT** & **$DG**, due to Walmarts big city dominance and Dollar Generals growth and dominance in tiny rural communities too small for a Walmart. But I’m glad this drop exposed me to Target, seems like a great company to buy into at current valuations supporting P/S <1, EV/EBITDA ~8.5, with 3 year CAGR of 12%-24% in revenues, earnings, and net income.  Was even more shocked to see ROE ~45%, ROA ~10%, and ROTC of ~17%. Favorable profits, average growth, exceptional price. Seeing margin of safety from 3 sources ranging from -5%, to -28%, all the way to -68%. These apps weight metrics differently depending on their propensity to favor growth/future prospects or value/past stability; all 3 rarely agree that there IS even a margin of safety.

Bottom line, it was a good company at a fair valuation and dropped 25% over irrational fears of short-term industry headwinds. If you don’t let short-term panic spook you, these opportunities present themselves relatively often. 

 

Been watching $TGT for awhile and agree with you completely. My $150 buy limit barely missed this past week. Catching falling knives is no fun but, with quality names, it can be lucrative!

My PT for Stage 1 accumulation is ~$130-$135, but the valuation at those prices would be crazy.

Liquid

It was a good company at a fair valuation, yes, based on trailing numbers.
The stock price cratered overnight and that doesn’t make sense, but Target also woke up one fine morning and completely changed their profitability numbers as a business. Both the earnings and stock took a huge shock overnight. So the reaction is justified.

Also, all the metrics you quoted, are projected metrics that we cannot assume to be “true” in the future. What $TGT just demonstrated was that those metrics CAN change overnight. Yes it’s cheap based on estimates, but the market is just saying we don’t like the trajectory you’re on, and we no longer believe in those old estimates. And it did the same thing with $META and $NFLX. 

You can bet on these management teams riding out the challenges and coming out stronger on the other end, but the market is right in holding these companies accountable for the risks they’re facing in the short term.

Irritable Investor

That’s where I differentiate a falling knife from an irrational push towards off a cliff. If something is falling rationally, a few % at a time, I don’t act. But if something is falling 10% daily, multiple days in a row, or 25% overnight, I’m much more likely to strike. Don’t get many 10%-25% drops without an almost immediate profit in the next 7-15 days. Especially if it’s a strong/known company. 

Eric Messenger

I plan on buying $TGT when its dividend yield is above 3%

Dissecting the Markets

It recently announced partnerships with big names in advertising and entertainment, which could be the next big track for growth. It also looks like a double bottom on the chart

seria_kirmin

Irrationality at its Finest

New position in TGT

This member connected a brokerage account and is sharing trades and portfolio performance with the community. 