The AI stocks no one's talking about (but institutions are quietly buying) (From TradingTips)
Key Takeaways
- The arrival of a prominent activist investor signals a proactive effort to unlock shareholder value through strategic operational improvements.
- Investors can take advantage of a stock trading at a significant discount to the broader market while collecting a reliable and generous dividend.
- Incoming leadership brings deep operational expertise that aligns perfectly with the external push for renewed efficiency and profit growth.
Wall Street is always on the hunt for a specific type of story: the turnaround play. These are companies with household names and strong foundations that have temporarily fallen out of favor with the stock market. For investors, these scenarios offer a chance to buy a dollar’s worth of assets for pennies on the dollar. As of late December 2025, Target Corporation (NYSE: TGT) appears to be precisely that kind of opportunity.
Reports confirmed in late December that Toms Capital Investment Management (TCIM), a prominent activist hedge fund, has built a significant stake in the retail sector player. The market’s reaction was swift and decisive. Target shares rose about 3.1% immediately after the news, then stabilized in the $97-$99 range. For retail investors, it’s important to understand why this matters.
When an activist investor takes a stake, they are not just betting the stock will go up; they intend to make it go up. They often demand board seats, strategic changes, or aggressive cost-cutting. Consequently, the arrival of a firm like Toms Capital usually establishes a floor for the stock price. It signals to the market that the period of passive decline is over and a proactive effort to unlock shareholder value has begun.
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The Discount Aisle: Why Target Stock Is Cheap
To understand the bullish case for Target, investors must first look at how far the stock has fallen. The year 2025 was undeniably difficult for the retailer, with Target’s stock price declining approximately 28% year-to-date. Its primary competitor, Walmart (NASDAQ: WMT), is up about 23% thanks to its dominance of the grocery market. Consumers, squeezed by inflation, pulled back on discretionary purchases like home decor, electronics, and trendy apparel, the very categories where Target makes its highest profit margins.
However, this sell-off has created a disconnect between the stock price and the company's actual earnings power. Consider the following financial metrics that highlight the value opportunity:
- Price-to-Earnings Ratio (P/E): Target is currently trading at a P/E ratio of roughly 12x to 13x. This means investors are paying about $12 for every $1 of profit the company generates. In contrast, the broader S&P 500 often trades at around 20x earnings, while high-flying retailers like Walmart trade at significantly higher premiums. This suggests Target is undervalued relative to the market and its peers.
- Dividend Yield:Target pays a substantial dividend, currently yielding between 4.6% and 5.0%. This is a healthy payout in the current market environment.
- Dividend King Status: Target has raised its dividend for more than 57 consecutive years. This reliability provides a safety net for investors. Even if the stock price remains flat in the short term, shareholders earn nearly a 5% return on their investment simply by holding the stock.
Essentially, the low valuation limits the downside risk, while the high dividend pays investors to wait for the turnaround strategies to take effect.
The Fixer: What the Activist Might Demand
The excitement surrounding this news is specifically about Toms Capital. This firm has established a reputation for identifying undervalued companies and driving major corporate events that result in payouts to shareholders. Their approach is rarely passive.
Investors are looking at Toms Capital’s recent wins as a blueprint for what might happen at Target:
While a full buyout of a massive retailer like Target is less likely than with consumer packaged goods companies, the playbook remains relevant. Toms Capital is expected to demand changes that directly improve the balance sheet. This could include:
- Portfolio Review: Pressuring Target to sell or spin off underperforming brands or business units.
- Cost Discipline: Demanding deeper cuts to the supply chain expenses than the management team has previously planned.
- Real Estate Review: Target owns a significant amount of its own real estate. Activists often push retailers to monetize these assets to generate immediate cash.
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The February Pivot: New Leader, New Pressures
The timing of this investment is perhaps the most critical data point for investors. It coincides almost perfectly with a major changing of the guard at Target’s headquarters. Long-time CEO Brian Cornell is set to retire on Jan. 31, 2026. Taking the reins on Feb. 1, 2026, is Michael Fiddelke, the current Chief Operating Officer and former Chief Financial Officer.
Initially, Wall Street viewed Fiddelke’s appointment as a signal of continuity, a safe, steady hand who would continue the existing strategy. However, Tom's Capital's entry changes Fiddelke’s mandate entirely. He will not have a honeymoon period to adjust slowly.
This combination of a new internal CEO and an aggressive external investor could arguably be the Goldilocks scenario for the stock:
- The Operator: Fiddelke knows where the bodies are buried. As a former CFO, he understands the granular details of the company’s margins and expenses.
- The Agitator: Tom's Capital provides the external pressure needed to make difficult decisions that long-term insiders might avoid.
Instead of fighting the activist, Fiddelke can leverage their presence to accelerate necessary changes, such as simplifying operations or exiting unprofitable product lines. This dynamic creates a powerful check-and-balance system focused entirely on boosting the stock price in 2026.
Is This the Bottom? Risk, Reward, and Recovery
Investors must always acknowledge risks. Target still faces a bifurcated consumer who is spending heavily on groceries but skimping on high-margin goods. Additionally, macroeconomic threats, such as potential tariffs on imported goods, could pressure margins in the coming year.
However, successful investing is about weighing risk against reward. With Target trading near multi-year valuation lows, much of the risk is already priced into the stock. The entry of Toms Capital fundamentally alters the equation. It introduces a powerful catalyst for change that was missing throughout 2025.
The combination of a low P/E ratio, a secure and strong dividend yield, a new CEO focused on operations, and an activist investor with a history of big wins creates a compelling setup. The activist stake has likely put a floor under the stock, offering investors a rare opportunity to buy a blue-chip retailer at a discount with a catalyst for growth on the immediate horizon.
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