Missing the Target

Currently, my family portfolio contains over 30 UK shares and US stocks. We own US mega-cap tech stocks for their growth potential, plus FTSE 100 and FTSE 250 value and dividend shares for passive income.

Sometimes, I spot hidden value in the S&P 500, when businesses trade on lowly ratings or offer superior dividend yields. Once such company was Target Corp (NYSE: TGT), a huge American retailer I believed had recovery potential.

Unfortunately, Target shares turned out to be a falling knife, rather than a fallen angel. Yet again, I was lured by attractive fundamentals into another value trap. Over one year, the Target share price has plunged by 30.2%. Even worse, the price has crashed by 45.1% over five years, making it one of the S&P 500’s worst performers.

Sell or hold?

Famed American investor Peter Lynch once warned, “Selling your winners and holding your losers is like cutting the flowers and watering the weeds”. His advice is to pull up a portfolio’s weeds by selling losing stocks, while keeping tight hold of top performers.

In pounds sterling, the value of our shareholding has collapsed by 44.8% — our worst performance for more than 15 years. Even so, I’m in two minds what to do with my family’s stake in Target. I decided to ask AI chatbot ChatGPT for help.

As expected, ChatGPT’s reply was even-handed and guarded, because it’s not a registered financial adviser. However, it did ask me about Target’s strengths and weaknesses and why I invested in this company in the first place.

First, this share-price crash is company-specific, with other retail stocks and the wider US market doing rather well. Hence, when sales growth resumes, this business might rebound hard. As ChatGPT puts it, “Don’t sell simply because the price falls, unless the company’s prospects have changed”.

Second, I bought this stock for its generous dividend yield, which rises as the share price falls. Today, it stands at over 4.8% a year, one of the most generous in the S&P 500.

Third, I’m investing for the long run and can tolerate volatility, plus I don’t need to panic sell or raise cash. As ChatGPT adds, “Some investors even regard a steep drop as a potential ‘buy the dip’ opportunity”.

I’ll hold for now

ChatGPT also suggests “a sustained deterioration in business quality” as being a good reason to ditch a stock. I don’t see this at present. Plus I’d hate to ditch our stock only for Target to have a bumper holiday season.

Therefore, I’m going to sit on the fence by keeping hold of our Target stock until its next update in early 2026. But if the business performance and key metrics (sales growth, earnings, and cash flow) deteriorate yet again, then I’ll probably get shot of Target.

Furthermore, with better investing opportunities elsewhere, my wife and I have a pot of cash waiting to take advantage of other market bargains…

The post Does ChatGPT suggest selling this S&P 500 stock, down 30% in 2025? appeared first on The Motley Fool UK.

Market meltdowns

My first stock slump was 19 October 1987, known as Black Monday. That day, the Dow Jones Industrial Average index collapsed by 22.6%, its largest-ever one-day percentage fall. Despite the FTSE 100 plunging that month, it actually closed up 2% in 1987.

My second stock market crash was the bursting of the dotcom bubble in 2000/03. From end-1999 to end-2002, the Footsie lost 43.1% of its value, finally bottoming out in March 2003. (One fantastic Fool headline at this very low was “FTSE 3,287: Time to Buy”, perfectly calling the bottom of the market.)

My third bout of market madness became the global financial crisis of 2007/09. As American house prices crashed and US stocks tumbled, the global fallout left the FTSE 100 31.3% lower in 2008.

My fourth big share slide came in 2020, as Covid-19 infections multiplied. With the US and UK stock markets down 35% from previous highs, my wife and I heavily bought cheap shares in spring 2020. The subsequent returns have been fabulous.

Here comes the crash?

In my experience, stock market crashes usually happen when share prices get so high, they disconnect from reality. Right now, the US S&P 500 index is expensive on almost every valuation measure. Yet, stock prices keep rising, propelled upwards by huge flows of money, especially into low-cost index-tracking funds and mega-tech stocks.

Will the market crash in the final quarter of 2025? I admit to the possibility, especially given that October has historically been a terrible month for stock markets, notably in the Great Crash of 1929 (and in 1987). But given the massive flows into mega-cap US stocks, I don’t see a 20% correction in what’s left of 2025. But 2026 is a different matter…

Hidden value?

Though I see the US stock market as overvalued, I’m not dumping American shares from my family portfolio. Instead, I’m hunting for hidden value in the S&P 500. One candidate that stands out is Target Corp (NYSE: TGT).

Target is one of America’s largest retailers of general merchandise, selling through almost 2,000 big-box stores and online. However, while larger supermarket chains have boomed, Target’s sales and margins are suffering.

As I write, Target stock stands at $88.01, valuing this business at $40.4bn. At its 52-week high, the share price hit $161.50 on 15 October 2024, before crashing to a low of $86.30 on 22 September 2025. It’s plunged 42.2% over one year and 44.7% over five years (excluding cash dividends).

After this share-price plunge, Target stock trades on 10.4 times trailing earnings, delivering an earnings yield of almost 9.7%. Also, its dividend yield has soared to 5.1% a year — a level rarely seen among large-cap US stocks.

To me, these fundamentals suggest this stock is deep into bargain bin territory. Then again, who can say when quarterly sales will stop sliding — and when revenues, margins, and profits will return to historic norms? Nevertheless, if my family portfolio didn’t already own this stock, I’d like to buy it — perhaps during the next stock market crash!

The post US stocks look bubbly. Will the stock market crash in 2025? appeared first on The Motley Fool UK.

Currently, the S&P 500 trades on 25.3 times trailing earnings and offers a dividend yield below 1.2% a year. To me, these are not the fundamentals of an undervalued market — quite the opposite, in fact. Meanwhile, the tech-heavy Nasdaq Composite index is even more expensive, trading on 32.7 times historic earnings and offering a dividend yield of 0.6% a year.

Both indexes hit fresh highs last week, building on previous records this year. While these trends make me nervous, I’m not brave enough to sell my family’s US stocks and walk away. Like my investing hero Warren Buffett repeatedly warns, “Never bet against America”.

My family portfolio made its largest purchases of US stocks in November 2022, just before the US midterm election. Back then, I saw clear value in American shares after steep price falls following the market euphoria of 2020/21. Hence, we invested heavily in mega-cap US companies — and have made life-changing returns since.

Value target

What do I do now, given I see the US stock market as widely overvalued? Despite living in a world of go-go growth stocks, perhaps the answer is to return to my roots as a value and dividend investor?

Checking my family portfolio’s holdings of American companies, one stock stands out for its underperformance. The shares of S&P 500 retailer Target Corp (NYSE: TGT) have crashed hard since their all-time highs of summer 2021.

After collapsing along with global stock markets during the Covid-19 crisis of early 2020, Target stock soared as the US economy boomed again. On 13 August 2021, this stock closed at $261.54, but it’s been steeply downhill ever since.

As I write, this share trades at $86.76, valuing the group at $39.4bn — a fraction of its former peak. Over one year, the Target share price has dived by 44.1%, plus it has plunged by 43.8% over five years (excluding dividends). This has followed a sustained period of slower sales growth, slipping margins, and lower profits.

After such steep declines, this stock looks deep into value territory. It trades on a modest multiple of 10.1 times trailing earnings, delivering an earnings yield of 9.9%. What’s more, the dividend yield has leapt to nearly 5.3% a year — a cash yield rarely seen among S&P 500 stocks.

After crashing by two-thirds since August 2021, will this falling knife keep on falling? In other words, is this stock in permanent decline? I can’t help thinking that there is deep value lurking in this business, despite its problems with weaker sales, profits, and margins.

In summary, I see Target stock as a classic value target — and perhaps one that might attract the attention of a bidder with deep pockets. Also, the shares could rebound if/when Target’s sales start growing again. Hence, I have no intention of parting with our current holding at anywhere near today’s price levels.

The post Is this S&P 500 stock far too cheap to ignore? appeared first on The Motley Fool UK.

Burst bubble?

On 19 February 2025, the S&P 500 peaked at 6,147.43, before slipping. This peak didn’t last as share prices lost momentum. And after President Trump announced the highest US import tariffs since 1930, stocks crashed.

At its 2025 low on 7 April, the S&P 500 hit 4,835.04. This left the index down 21.3% in seven weeks — among its most brutal falls ever. However, this latest stock-market crash soon reversed, with prices soaring after Trump suspended new tariffs for 90 days.

The S&P 500 is not cheap

Throughout 2025, I warned that US stocks were expensive, priced for perfection and perhaps in bubble territory. In historical and geographical terms, they looked pricey. And even after recent weakness, the S&P 500 isn’t cheap.

On Thursday, 22 May, America’s main market index closed at 5,842.01. That’s around 5% below its record, driven by the strong comeback since 8 April. Today, it trades on 23.8 times trailing earnings, delivering an earnings yield of 4.2%. The dividend yield is 1.3% a year — versus 3.7% for the UK’s FTSE 100.

Looking ahead over the next 12 months, the index trades on 22.1 times expected earnings. This looks fully priced, making it risky for me to buy US stocks at such valuations.

A dirt-cheap US stock?

That said, I see pockets of value within US corporations. For example, take giant American retailer Target Corp (NYSE: TGT), whose stock has crashed since its 2021 high.

While other mega-retailers’ share prices have doubled, Target stock has missed this target by miles. On 14 November 2021, this S&P 500 share hit a record high of $268.98. Since this milestone, it’s been downhill all the way.

On Thursday, 22 May, Target shares closed at $95.06, valuing this once-mighty retail chain at just $43.2bn. Here’s the share-price changes over six timescales:

The Target share price has declined in five of these six periods, with few signs of it turning the corner. Nevertheless, according to Stein’s Law (from US economist and presidential adviser Herbert Stein), “If something cannot go on forever, it will stop”. As Target is unlikely to become worthless, I expect its share price to revive at some point.

At the current share price, this stock trades on under 10.5 times earnings, producing an earnings yield of 9.6%. Thus, its juicy dividend yield of 4.7% a year is covered a healthy two times by earnings — a solid margin of safety.

To me, these look like the fundamentals of a classic value buy for my family portfolio. Also, perhaps an activist investor might help turn this tanker around? Hence, though my wife and I already own Target stock, we are debating buying more.

Though I suspect that Target is near the bottom of this downturn, the shares could have further to fall. I worry that very high import tariffs could hit earnings in 2025/26, plus sales and margins are under pressure. Yet Target’s strong cash flow and solid balance sheet should support bumper dividends and more share buybacks for years to come!

The post This S&P 500 stock looks crazily cheap and has a 5% dividend yield appeared first on The Motley Fool UK.

In 2023, the US market has been driven up by the ‘Magnificent Seven’ group of mega-tech stocks. But with these shares trading on sky-high ratings, I’m looking elsewhere for value among American companies.

Two US stocks that look too low

In my search for undervalued US stocks, two well-known names leapt out at me. One share I already own, while the other I would very much like to. Here are these two market laggards:

1. Target’s in trouble

My wife and I bought shares in retailing giant Target Corp (NYSE: TGT) in July 2022 for $156.44 apiece

Unfortunately, the Target share price has been in freefall pretty much ever since. As I write, it stands at $110.45, valuing the group at $50.7bn. To date, we’ve lost almost 30% of our initial investment. Ouch.

Over one year, this US stock has lost 27.9% of its value. However, over five years, it’s gained 30.5% (both figures exclude dividends).

I’d gladly buy more Target stock today, had I the cash to spare. That’s because it trades on just 15.1 times earnings, for an earnings yield of 6.6% a year. That’s a lot cheaper than the wider US stock market.

In addition, Target shares offer a comparatively high dividend yield of 4% a year. This is covered almost 1.7 times by earnings for some margin of safety.

Currently, Target faces some strong headwinds, including slowing sales growth, falling earnings and a crime wave driven by mass shoplifting. Despite these problems, I’m optimistic for a sustained recovery in its fortunes, so we’ll hold on tight to our Target shares.

2. Bank of America slumps

In the list of biggest US banks, Bank of America Corp (NYSE: BAC) comes in at #2. But while the US economy has outperformed expectations in 2023, this stock has been sliding.

As I write, BoA stock trades at $27.27, valuing the bank at $216.8bn. This is just 7.1% above its 52-week high of $25.46, set on 6 October. Over one year, the shares are down 11.1%, plus they’ve lost 4.2% of their value over five years. Yuck.

Right now, the stock looks very cheap to me, both in terms of its sector rating and versus the wider US market. It trades on a lowly multiple of 7.9 times earnings, for an earnings yield of 12.7%.

What’s more, the company’s dividend yield is one of the highest among giant US corporations. Even better, this cash yield of 3.5% a year is covered a healthy 3.6 times by earnings. So what’s not to like?

One big problem for US lenders is that credit growth has slowed considerably of late. Also, huge paper losses on banks’ enormous ‘hold to maturity’ bond portfolios are making investors nervous. And loan losses and bad debts will surely rise if the US economy stumbles.

Despite these concerns, I’d gladly buy both US stocks today — if I had some spare cash, that is!

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