In the stock market, "boring" is rarely a bad thing...
Boring companies tend to grow without massive ups and downs. You can buy their stocks without fear of a blowup. And these "steady Eddie" companies often pay solid and growing dividends.
What's surprising is that lots of these companies still offer fantastic long-term returns... So you can get all the benefits of "boring" without giving up profits.
That's not always the case, though. At certain times, even a boring business can take a serious beating.
That's happening to one retail giant right now...
Its stock has been falling for nearly two years. And the decline just accelerated last month. The good news is, according to history, that painful drop could soon give way to outsized returns.
Let me explain...
Ask anyone to name companies still in a 50% drawdown today. Not many would mention Target (TGT) on their lists.
TGT checks off all the boxes for a boring stock. It's a well-known brand that has been around for decades. The company has increased dividends for decades, too. And for the most part, it sells the basics. So its underlying business doesn't see massive fluctuations from year to year.
Despite all this, TGT is still down almost 50% from its 2021 high. And it has happened while major competitors like Walmart (WMT) are soaring. Take a look...
Target's stock fell with the rest of the market last year. But while many other stocks have been storming back in 2023, TGT recently hit a multiyear low.
The good news, though, is that the drop triggered a rare setup...
TGT fell for nine straight days. A losing streak that long has only happened one other time since 1991. So to get more data, I tested each time shares fell for seven days straight.
A seven-day drop has happened 21 times in the past. And surprisingly, TGT tends to outperform after those declines. Take a look...
TGT has a history of strong returns thanks to its boring business model. The stock has risen 10.6% a year since 1991, outpacing the 8.2% annual gain of the S&P 500 Index over the same period.
Normally, we'd expect a stock to fall further after a string of consecutive down days. But history shows otherwise... After these seven-day losing streaks, TGT jumped 6.7% over the following three months and 15.6% over the following year.
That's major outperformance. And it tells us that TGT shareholders could be in for some good news after a brutal year.
The problem is, it's dangerous to jump in while the downtrend is still in place. Buying today would be like trying to catch a falling knife.
Instead, the smart bet is to watch the stock closely. Once an uptrend emerges, consider buying then. History shows the worst of the current bust could be behind us... And this "boring" retailer is due for a big move higher.
Good investing,
Brett Eversole
Further Reading
"The big blue-chip stocks you would expect to soar in a market rally are moving slower," Pete Carmasino writes. While all the major indexes are up this year, the "steady Eddie" companies in the Dow Jones Industrial Average are lagging behind. Here's what it means... Read more here.
Today, most investors sell first and ask questions later. But those "gut" decisions can lead you astray. If you tend to your portfolio like an orchard – and invest in sound businesses over time – you'll be more likely to succeed... Get the full story here.
