Target’s buybacks make shares more attractive

The Motley Fool Take

Target put on a solid earnings report last month, with revenue rising 13.3% year over year to $ 25.7 billion, beating expectations. Digital sales were up 29% year-over-year, slightly outperforming competitors like Amazon and Walmart in ecommerce growth. The company also repurchased more than $ 2 billion of its own stocks, adding value to existing stocks.

In the past few years, Target has proven to be the best retailer. The company takes a unique approach to multi-category retail, a sector with just a handful of competitors like Amazon, Walmart and Costco. Unlike its peers, Target has cultivated a “cheap chic” image by working with designers and developing 10 of its own brands, each with annual sales of at least $ 1 billion.

The company’s smaller stores (typically one-third the size of an average Target big-box location) are an important part of its growth strategy; they separate it from its closest colleagues who just run big stores or sell online. The small-format stores fit in well with branch-based fulfillment and are intended to help Target expand its customer base in densely populated areas such as underserved neighborhoods and university towns.

Target’s aggressive share buybacks are a clear expression of management’s confidence in its growth strategy and long-term cash flow, as well as its belief that the stock is undervalued. With a current P / E ratio of 18, it’s easy to see why.

Ask the fool

From HC in Pueblo, Colorado: I’m interested in investing in stocks that cost less than a dollar each. Do you recommend any?

The fool replies: No. They refer to “penny stocks” that trade for less than about $ 5 per share. For example, if you only have $ 500 to invest, it might seem wise to buy 2,500 shares of a stock that trade for 20 cents a share, but it isn’t. Penny stocks are notoriously volatile and often tied to small and shaky companies with no proven track record. They are often hyped online and are easily manipulated by shady characters.

Understand that with just $ 500 you could buy 10 shares of a $ 50 share or one share of a $ 500 share. Many brokerage houses let you buy fractions of shares, so you might buy as much as half a share of a $ 1,000 share.

Many $ 500 stocks are on the way to $ 1,000 or more, while many 20-cent stocks are on the way to 10 cents or less. Never focus solely on the price of a stock – focus on the business and its growth prospects.

From GI in Fayetteville, NC: What are the minimum payouts?

The fool answers: These are withdrawals that you must make annually from traditional IRAs, 401 (k) plans, and certain other retirement accounts once you reach a certain age. (However, they do not apply to Roth IRAs.)

RMDs were raised long after you turned 70 1/2 years old, but the rules have recently changed. If you turn 70 on July 1, 2019 or later, you can postpone taking RMDs until you are 72 years old. RMDs are generally taxable and you may need to sell some stocks or other holdings in the IRA to generate the cash to withdraw. For more information on retirement issues, please visit Fool.com/retirement.

The school of the fool

Credit cards are preferable to debit cards in many ways, but before you decide what is best for you, learn about the pros and cons of each card.

With a credit card, you are essentially drawing a line of credit from the issuer of your card and you are expected to pay off your debts each month. If you fail to do this, you will be charged interest. A debit card, on the other hand, will withdraw directly from your bank account as if you were writing a check. There is no borrowing.

One advantage of debit cards is that you cannot go into debt. You can’t buy what you can’t afford. This also means that you don’t receive an invoice that has to be paid off every month. Debit cards generally don’t charge annual fees either, while many credit cards do.

Credit cards now offer many advantages. For starters, using a credit card responsibly – that is, paying your bills in full and on time – is a great way to build a high credit score that can help you get better interest rates when you borrow money. (On the other hand, applying for too many cards or piling up debt can affect that credit rating.)

Many credit cards offer perks such as a percentage of your purchase price in cash or the ability to collect points for discounts. Travel credit cards provide access to airport lounges, hotel and flight upgrades, and restaurant credits. Some credit cards also offer purchase protection and extended guarantees.

Credit cards also offer collateral that some debit cards don’t. Your issuers tend to monitor usage and often report suspicious activity before it becomes a problem. And the law says you won’t be hooked for more than $ 50 if unauthorized charges are placed on your credit card.

However, the disadvantages of credit cards – high interest rates and high debt – can be catastrophic. Consider using a credit card, but treat it like a debit card – settle your bills in full immediately.

My stupidest investment

From CK, online: My stupidest investment decision for the past 30 years has been to just invest everything in mutual funds and index funds while staying away from individual stocks because I could potentially lose money. I’m finally investing in individual stocks now, and while I have a loser or two, my winners have more than made up for them. What makes it easier for me to breathe is that when I’ve increased 150%, sell enough to get my original investment back – and then never sell again. Then I take that original investment and either put it in another stock or keep it in cash for a great buy opportunity. After my first Sure Profits sale, I commit to keeping everything I buy for years.

The fool replies: There is nothing wrong with sticking to good mutual funds. Low-fee, broad-based index funds that track the S&P 500 are even better. For example, over the past 30 years, the S&P 500 has achieved average returns of 10% to 11% (not adjusted for inflation) annually. That’s enough to turn an annual investment of $ 10,000 into about $ 2 million in those 30 years.

For those with an interest, however, individual stocks can be worth investing in, and oversized returns are possible – though nowhere near guaranteed. Your approach to making your initial investment leaves less money to grow in each stock, but it does mean you play with house money afterward.

Who am I?

My roots go back to 1996 when Microsoft founded me as one of the first major online travel agencies. In 2003 I was fully acquired by InterActiveCorp, which also bought TripAdvisor and other companies. It spun me off with its travel business in 2005, and I spun off TripAdvisor in 2011. Hotels.com, Hotwire, Orbitz, Travelocity, trivago, Vrbo and Wotif. Today I am one of the largest online travel agencies in the world. Who am I?

Don’t you remember last week’s quiz question? Find it here.

Last week’s quiz answer: Koch Industries

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