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Target Hits the Bull's-Eye


Management has the right approach for the fourth quarter.

Well, I finally got to watch The Taking of Pelham 123, which I'd fallen asleep during the night before. It's an awesome movie -- both Travolta and Denzel did a heck of a job.

Asian stocks sank overnight, but not by much. The Hang Seng and the Nikkei were off 0.32% and 0.55%, respectively. European stocks, however, were in positive territory early this morning. And here in the US we're currently trading lower.

Here's what I'm focused on this fine Wednesday morning:

Target (TGT):
The store that's known both for its big bull's-eye and low prices released its third-quarter numbers yesterday.

It put up $0.58 a share, which was way better than the $0.50 the Street had been looking for. But it seems some folks were taken in by its forward-looking comments. More specifically, the Associated Press quoted the company as saying, "In light of the current and projected economic environment and expectations for a highly promotional holiday season, Target remains cautious about fourth-quarter performance and is planning conservatively in both business segments."

My thoughts:

1. Off the bat I felt this quarter was a solid one. And as for the cautious tone it seems to have adopted, I think that's good management. If the fourth quarter comes in a little light because of competition and markdowns, management can say, "See, we told ya so." If things go well or better than expected, it looks like a hero.

2. Walmart (WMT) is a clear threat, but there's enough space for two to tango here. Target offers good prices, and to boot, has a higher perceived quality (right or wrong). It's also extremely convenient and carries lots of merchandise that will be attractive to shoppers this holiday season.

3. In short, Target remains a favorite of mine in this environment. If J.C. Penney (JCP), for example, can trade at about 28.2 times this year's estimate (which is on the excessive side), I think Target deserves to trade at least 20 times this year's estimate, which would imply a target price (sorry, had to slip that one in) in my mind of more than $62.

4. Long story short, yesterday's sell off was an opportunity.
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No positions in stocks mentioned.

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