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So far, 2022 has been a tough year for global equity markets. Almost all major stock indices are down sharply, with the notable exception of the FTSE100 hint. On Friday, the Footsie closed up 0.07% this calendar year. That’s a huge improvement in the US stock market, where prices have crashed. But as stock prices fall, cheap stocks keep popping up on my radar.
Falling Markets Create Cheap Stocks
So far this year my bargain hunt as a veteran value investor has largely been limited to FTSE 100 stocks, plus the odd FTSE250 Stock. But following sharp falls in US stocks, I’m starting to see the real value in some US stocks. After all, the S&P500 the index is down more than 19% from its all-time high on January 3, while Nasdaq Compound the index has crashed almost exactly 30% from its November 22, 2021 high. Ouch.
Last week, the S&P 500 posted its seventh straight weekly decline. A losing streak of this length has not occurred in the US market since 2001. Additionally, the main US stock index has lost 14.2% of its value since April 1. To me, this sustained selling pressure means investors risk throwing the baby out with the bathwater. In other words, I see more and more cheap stocks at attractive prices in New York these days.
Target company (NYSE:TGT) was one of the US stocks that took a sharp beating last week. Shares of the retail giant have crashed nearly 30% in the past five trading days. Here is how this stock performed over seven different time periods:
|Year to date||-32.9%|
As you can see, the worst of the damage to Target stock took place last week. As a result, the stock is down nearly a third this calendar year. On Wednesday, Target warned in its latest quarterly results that its profits would be hit by higher costs. The big-box retailer said profit margins were being squeezed by rising wages, fuel and transportation bills. Supply bottlenecks and logistical disruptions also posed problems for the group. But after this sharp drop, could this title be too cheap today?
I see value in the fundamentals of Target
At Target’s current stock price of $155.36, this stock is trading at 12.9 times earnings, producing an earnings yield of nearly 7.8%. This is a very low rating for a US mega-cap ($72 billion) company. Additionally, Target’s dividend yield of over 2.3% is nearly 1.5 times the S&P 500’s cash yield of 1.6%. , I see future value in these fundamentals. So, after their biggest one-day slump since the Black Monday crash of October 19, 1987, I consider Target stocks too cheap today.
I’d buy that share cheap now
From 2019 to 2021, I rarely saw value in the US stock market. For years I considered US stocks to be one of the most expensive assets in the world. However, after the recent steep declines, I think value is starting to emerge among quality US companies. That’s why I would buy Target today as a rarity: a cheap US stock!