Bill Smead is a long-time value investor known for holding shares in Warren Buffett’s Berkshire Hathaway for almost forever.
But Smead has added another value play to his long-term minded equity portfolio at Smead Capital Management — Target (Yahoo Finance’s 2019 company of the year).
“We think we are at the very early stages of a great era for Target,” Smead said on Yahoo Finance’s The First Trade. Target (TGT) is Smead’s second largest holding. For Smead, the bet on Target reflects his belief that millennials will choose it as the first place to shop for apparel and daily necessities. In turn, the children of aging millennials will also come to view Target as the best place to shop.
A virtuous circle if you will.
Smead acknowledges Target’s stock isn’t cheaply valued after an almost 90% run in 2019. But the fundamentals are such that a higher valuation on Target could be warranted.
“If you have 90 million millennials coming to your stores in the next 10 years compared to 65 million Gen Xers, you could see a pretty good growth stock,” Smead said.
Crossmark Chief Markets Strategist Victoria Fernandez adds she has been impressed by the momentum in Target’s toy business, which has gained market share amid remodeled shops and the exit of Toys R Us.
Indeed both top minds on the Street are preaching to the choir on Tar-Jay. The company has had one bang up year and was named Yahoo Finance’s 2019 company of the year.
Target’s apparel sales surged 10% in the third quarter. Online sales increased 31%. Operating income rose 22.3%. The company lifted its full-year earnings outlook for the second time this year. Entering the fourth quarter, Target took its full-year earnings outlook to $6.25 to $6.45 a share from $5.90 to $6.20 a share. That was the clearest sign to investors that CEO Brian Cornell’s $7 billion in investments outlined back in February 2017 are working.
Cornell told Yahoo Finance he and his team at Target are hungry to toss up some more big wins for shareholders such as Smead in 2020.
“I think part of our culture is being very humble and making sure that we stay hungry. That we know each and every day, we have a guest to serve, and a business plan that we have to execute,” Cornell said. “So we stay very grounded. We know that in retail, we get a scorecard every day. And we want to make sure it's a winning scorecard each and every day of the week.”