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“The only thing you can be sure of is that there are times when large numbers of stocks are priced too high and other times when they’re priced too low.” – Benjamin Graham
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Everything seems to be trading lower this morning. Futures were already lower overnight, but Target’s (TGT) second profit warning in less than three weeks has dragged them lower. TGT is trading down over 9%, which is even more than the 6% that Bitcoin is trading down following proposed legislation in the Senate to regulate cryptocurrencies. Although the two senators bringing forth the legislation both just noted in an interview that they could see bitcoin as a diversified part of investor retirement portfolios.
In today’s Morning Lineup, we discuss the latest proposed crypto legislation (pg 4), the larger than expected rate hike in Australia (pg 4), market activity in Asia and Europe (pg 4), TGT’s warning (pg 5), and economic data out of Europe (pg 5).
TGT has long been considered one of the most well-run retailers in the United States, so when a company of its caliber is forced to revise guidance less than three weeks after already significantly cutting guidance, you can only imagine how hard this environment has been for businesses across the economy. In its announcement this morning, TGT pointed to a ‘rapidly changing environment’, ‘external volatility’, and ‘unusually high transportation and fuel costs’ as reasons for lowering Q2 margin guidance from 5% down to 2%. On the bright side, the company said that the actions it was taking now should help improve long-term margins in the second half of the year and that demand remained generally strong. You can’t fault the company for taking proactive steps to address conditions, but there’s no guarantee that the environment is suddenly going to stop ‘rapidly changing’, or that external volatility will suddenly abate, and it certainly doesn’t seem like transportation and fuel costs are going to decline from their ‘unusually high’ levels.
With the stock indicated to gap down close to 10% this morning, TGT has now declined 46% from its high less than seven months ago. For a stock that had a market cap of more than $125 billion late last year, a decline of this magnitude is significant, to say the least. TGT remains just about 10% above its pre-COVID peak so we can’t yet add it to the list of stocks that have unwound all of their post-COVID gains, but it’s getting close.
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