TGT vs. JNJ: Which S&P 500 Stock Is a Better Buy Today?

Author: Finscreener

Estimated read time: 3 minutes

Publication date: 8th Jun 2021 11:08 GMT+1

The S&P 500 index is among the most popular in the world. It holds the 500 largest companies part of the U.S. economy giving investors exposure to blue-chip stocks across multiple sectors. The average market cap of a company listed on the S&P 500 is over $200 billion.

Here, we look at two S&P 500 giants that are Target (NYSE: TGT) and Johnson & Johnson (NYSE: JNJ) to see which stock is a better buy right now.


TGT stock is up 288% in the last five years

Shares of Target have easily outpaced the S&P 500 in the last five years. Since June 2016, TGT stock has returned 288% while the S&P 500 has gained 119% in this period.

In the first quarter of 2021, Target’s sales were up 23% year over year. It was the fourth consecutive quarter where TGT’s top-line grew in excess of 20%. Analysts forecast TGT to increase sales by just 14% year over year in Q1.

As the economies reopen and consumer spending increases, the discount retailer should experience incremental sales in the upcoming quarters as well as the company’s traffic soared by 17% in the March quarter.

TGT management updated its guidance for Q2 and expects comparable-store sales to increase by mid to high single-digit percentages in the June quarter. It also expects to increase sales by single digits in Q3 and Q4 allowing the company to end the year with an operating margin of 8%, up from 7% in 2020.

In fiscal 2020, TGT sales were up 20% at $93 billion. Its sales were up by $15 billion last year allowing TGT stock to gain momentum and end 2020 at record highs. In 2020, Target’s sales were driven by an uptick in digital sales. However, its in-store sales in Q1 were up 18% on a comparable basis.

TGT stock is valued at a market cap of $114 billion.  Analysts tracking the stock expect it to grow sales by 8% to $102 billion in 2021 and by 2% to $104 billion in 2022. Further, its earnings are forecast to grow at an annual rate of 11.5% in the next five years.

We can see TGT stock is trading at a forward price to sales multiple of 1.1x and a price to earnings multiple of 19x which is reasonable. It also trades at a forward yield of 1.2%.


JNJ stock has trailed the S&P 500 index

While TGT stock has beaten the S&P 500, JNJ stock has trailed the index. In the last five years, shares of Johnson & Johnson have returned 65%. However, it is a perfect stock for low-risk investors looking to generate steady returns and earn regular dividends. JNJ stock has a forward yield of 2.6% which is twice as high as the S&P 500.

Johnson & Johnson is a Dividend King and has increased its dividend payouts each year in the last 60 years, driven by its core business and recession-proof model. The company derives sales from pharma products, consumer health products as well as medical devices.

While JNJ’s sales from its medical device business were hurt due to COVID-19, overall revenue grew 1% year over year. In Q4 of 2020, its sales were up 8.3% year over year, and in Q1 top-line growth stood at 8%. Comparatively, earnings growth rose to 7% in the March quarter.

The company’s management forecasts earnings to grow by 9% in 2021 while Wall Street expects EPS to grow at an annual rate of 7.5% in the next five years.


The verdict

Both TGT and JNJ are stocks that will help long-term investors generate consistent returns going ahead. While TGT stock is trading at a discount of 8% to consensus estimates, analysts expect JNJ stock to rise by 12% in the next 12-months.

Disclaimer: The writer is an experienced financial consultant who writes for The observations he makes are his own and are not intended as investment or trading advice.