We recently published a list of The 10 best defensive stocks to buy now. In this article, we take a look at the position of Target Corporation (NYSE:TGT) compared to other defensive stocks.

Defensive stocks tend to remain stable and are less affected by economic downturns. These companies operate in sectors that provide essential goods and services that people need regardless of the economic climate. Defensive stocks primarily include stocks of companies in the utilities, consumer goods, and healthcare sectors because they provide basic necessities of life. Companies in these sectors tend to have lower volatility and often pay stable dividends. They usually offer a safer investment option during times of market uncertainty.

US stocks rise sharply, but experts remain cautious

US stocks are doing well, thanks to strong economic data that has reassured investors. The S&P 500 and Nasdaq 100 have posted significant gains as they gained 4.3% and over 6% respectively in the last 5 days ending August 15. Global markets have also recovered from recent losses, and the US market as a whole has recovered from the losses it suffered in the first week of August. Investor sentiment remains strong, and US stocks are seeing continuous inflows. Moreover, Fed officials are hinting at possible rate cuts, which supports optimism that the US economy is on track for a soft landing.

However, some experts remain concerned about the future of the U.S. economy and markets and take a more conservative view. According to a July report by JP Morgan, recent market trends have benefited large, high-quality companies, particularly in technology and AI, resulting in high market concentration. However, high valuations and investor positioning may make it difficult to maintain this momentum in the second half of 2024. The report says that while U.S. market volatility is currently low, it could rise if conditions change.

According to Bruce Kasman, global growth is stable at 2.4%, with Western Europe and emerging markets recovering better and the manufacturing sector picking up again. Despite this, global core inflation is expected to be around 3% in 2024, which could limit the potential for monetary easing. Kasman warned that controlling inflation and normalizing interest rates could weaken demand and, in interaction with political factors, cause further inflation and tightening of monetary policy by central banks.

Leon Cooperman’s view on the current conditions

On August 15, Omega Advisors Chairman and CEO Leon Cooperman shared his perspective on the current economic situation CNBC Money Transfer CompanyCooperman expressed a cautious outlook on the economy, driven by two main factors. First, he is alarmed by the rapid increase in the US national debt, which has doubled from about $17 trillion in 2017 to about $34-35 trillion today. He said that this level of debt growth, which outpaces economic growth, is unsustainable and could lead to a fiscal crisis. However, the exact timing of such a crisis is uncertain. He added that none of the political parties are addressing this looming problem.

Second, Cooperman compared today’s market conditions with past periods of financial excess, such as the Nifty 50 era in the 1970s, when companies with extremely high valuations eventually went bust. He noted that the 10-year bond yield was 6.5% then, significantly higher than the current rate of around 3.9%. He believes that market valuations are not too high if the current bond yield is reasonable. However, he suspects that interest rates are too low and expects a rise in long-term interest rates, particularly the 10-year Treasury yield.

While he expects the Federal Reserve to cut short-term interest rates, which could lower borrowing costs, he believes long-term interest rates will rise, causing bond prices to fall and potentially putting downward pressure on equity valuations. If long-term interest rates rise significantly, it could make the stock market less attractive and potentially lead to a market decline.

Even though the current year has shown healthy markets with some corrections, Leon Cooperman’s expectations for the markets cannot be ignored. Cooperman is considered one of the most successful investors of the last decades. If these expectations come true, investors could turn to more defensive market sectors.

Our methodology

For this article, we used stock screeners to identify over 50 large- and mega-cap stocks from defensive sectors such as consumer staples, utilities, and healthcare. We narrowed our list down to 10 stocks with positive analyst sentiment and the highest average analyst price target as of August 16.

A woman shops for groceries at a Target store, her shopping cart full of products.

Target Corporation (NYSE:TGT)

Share price as of August 16: USD 141.12

Average analyst price target as of August 16: 25.14%

Target Corporation (NYSE:TGT) is a major American retailer known for its extensive network of large discount department stores as well as its smaller stores such as TargetExpress and CityTarget.

As one of the largest retailers in the United States, the company operates more than 1,900 stores nationwide. Its stores offer a wide variety of products, ranging from home goods and furniture to electronics, clothing, toys and groceries. It offers a wide assortment of items from both national and private brands. Its more than 45 private brands include brands such as Good & Gather, Market Pantry and Dealworthy, among others.

36 analysts have rated Target (NYSE:TGT) stock as a Buy, and the average price target of $176.60 represents an upside potential of 25.14% from current levels as of August 16. The stock is one of our best defensive stocks to buy now.

Over the past few years, Target (NYSE:TGT) has worked to improve its product offerings by building exclusive partnerships and expanding its brand lines. The company has also improved its digital and omnichannel capabilities while seeking to strengthen customer loyalty through revamped programs. These initiatives are designed to encourage customer loyalty and increase sales in a competitive retail market.

In the first quarter, the company reported a 3.1% year-over-year decline in total revenue, largely due to weaker in-store sales. However, digital revenue saw a modest 1.4% increase, driven by nearly 9% growth in same-day services. The “Drive Up” feature, which allows customers to pick up their orders without leaving their cars, saw a notable 13% increase in revenue.

Additionally, earnings per share for the quarter were $2.03, slightly below the year-ago figure of $2.05, but within management’s guidance range of $1.70 to $2.10. The relaunch of the Target Circle loyalty program in April was successful, bringing in over 1 million new members, reflecting strong loyalty to the brand.

On August 7, Wells Fargo analyst Edward Kelly lowered the price target on Target (NYSE:TGT) stock to $160 from $175 and maintained an Overweight rating. The company expects solid performance in the coming quarter, supported by achievable targets and continued margin improvements, although it acknowledges potential challenges in the second half of the year due to overall economic conditions and consumer trends.

Overall, Target (NYSE:TGT)’s efforts to expand its product mix, improve its digital services, and build stronger customer loyalty have positioned it well for future growth and may be an attractive option despite some near-term uncertainty.

Total TGT 6th place on our list of the best defensive stocks to buy. While we recognize TGT’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than TGT but trades at less than 5x earnings, read our report on the cheapest AI stock.

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Disclosure: None. This article was originally published on Insider Monkey.