2022 has been a rough year for global stock markets so far. Pretty much every major market index is down steeply, with the notable exception of the FTSE 100 index. On Friday, the Footsie closed up 0.07% this calendar year. That’s a huge improvement on the US stock market, where prices have crashed. But as share prices nosedive, cheap shares keep appearing on my radar.
Falling markets create cheap shares
So far this year, my bargain-hunting as a veteran value investor has largely been confined to FTSE 100 shares, plus the odd FTSE 250 stock. But following steep falls in US equities, I’m starting to see real value in some American stocks. After all, the S&P 500 index is down over 19% from its 3 January all-time high, while the tech-heavy Nasdaq Composite index has crashed by almost exactly 30% from its 22 November 2021 high. Ouch.
Last week, the S&P 500 recorded its seventh weekly loss in a row. A losing streak of this length has not happened in the US market since 2001. Also, the main US market index has lost 14.2% of its value since 1 April. To me, this sustained selling pressure means that investors are at risk of throwing the baby out with the bathwater. In other words, I’m seeing more and more attractively priced cheap shares in New York right now.
Off Target
Target Corporation (NYSE: TGT) was one US stock to take a brutal beating last week. The giant retailer’s shares have crashed almost 30% in the past five trading days. Here’s how this share has performed over seven different time periods:
| One day | 1.1% |
| Five days | -29.4% |
| One month | -35.7% |
| Year to date | -32.9% |
| Six months | -36.5% |
| One year | -31.1% |
| Five years | 185.6% |
As you can see, the worst of the damage done to the Target share price took place last week. As a result, the stock is down almost a third this calendar year. On Wednesday, Target warned in its latest quarterly results that its earnings would be hit by higher costs. The big-box retailer said profit margins were being throttled by rising wage, fuel and freight bills. Supply bottlenecks and logistical disruptions were also causing problems for the group. But after this steep fall, could this stock be too cheap today?
I see value in Target’s fundamentals
At Target’s current share price of $155.36, this stock trades on 12.9 times earnings, producing an earnings yield of almost 7.8%. This is a very lowly rating for a mega-cap ($72bn) US corporation. What’s more, Target’s dividend yield of over 2.3% is almost 1.5 times the S&P 500’s 1.6% cash yield. Although Target is struggling with rampant US inflation, I see future value in these fundamentals. Thus, after their biggest one-day collapse since the Black Monday crash of 19 October 1987, I view Target shares as too cheap today.
I’d buy this cheap share now
During 2019-21, rarely did I see any value in the US stock market. For years, I regarded US equities as among the world’s most expensive assets. However, after recent steep falls, I believe value is starting to emerge among quality US companies. That’s why I’d buy Target today as a rarity: a cheap US share!
