Target stock sinks after new CEO announcement, Tesla stock in focus

Yahoo Finance

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Video Summary

The market experienced a mixed opening, with the NASDAQ and S&P 500 showing downward momentum while the Dow trended upward. Tech stocks, particularly those associated with AI, are facing a pullback due to investor caution and fears of supply constraints and potential exclusion of certain markets. Retail earnings are rolling in, with Target announcing a new CEO and a challenging quarter, while other retailers like Lowe's and Home Depot are making acquisitions and showing more positive results.

The discussion highlights a rotation away from some tech stocks, with concerns about high valuations. In the retail sector, Target's upcoming leadership change is viewed with skepticism by the market, as the company has struggled to regain its footing and identity. Meanwhile, Walmart appears to be gaining market share, benefiting from consumer demand for groceries and convenience.

The potential of robo taxis is a significant valuation driver for some tech companies, though analysts and investors express caution regarding these future projections and the current reliance on speculative numbers. Homebuilders face headwinds from affordability issues, despite a slight decrease in mortgage rates, suggesting the housing market remains locked.

Short Highlights

The market opened mixed with the NASDAQ and S&P 500 declining, while the Dow Jones Industrial Average rose.
Tech stocks, especially those linked to AI, are experiencing a correction, with concerns about demand, supply, and valuations.
Target announced a new CEO, Michael Fideli, starting in February 2026, amidst a challenging earnings report and a stock decline.
Retailers like Walmart are gaining market share, particularly in groceries and convenience, while others like Home Depot and Lowe's are making strategic acquisitions.
The valuation of future technologies like robo taxis is being scrutinized, with debates on their realistic financial potential and impact on traditional automakers.

Key Details

Opening Bell and Market Overview [0:03]

Big Bear.ai Holdings rang the opening bell at the New York Stock Exchange.
Chimera Therapeutics was active at the NASDAQ.
Tech stock investors are facing a "wakeup call."
Target is set to have a new CEO soon.
Retail earnings are being released rapidly.
The overall market is characterized by a mixed picture across the three major averages.
The NASDAQ is continuing a downward momentum seen on Monday, where it fell the most in two and a half weeks.
The S&P 500 is also slightly down.
The Dow is opening in positive territory.

The market opened with a mixed performance across major averages. The NASDAQ and S&P 500 continued to slide, while the Dow showed gains. This initial trading session is marked by significant corporate news in tech and retail sectors.

"So much to get to, so little time, but we will aim to hit it all and then some."

Tech Stock Pullback and AI Concerns [1:50]

Nvidia is a focus, with eyes on its upcoming earnings report on August 27th.
An analyst expects demand for Nvidia's chips to be ten to one over supply.
There is market fear that Nvidia might exclude China from its third-quarter guidance due to sales restrictions.
Nvidia also faces a 15% fee to the White House.
Palunteer, a stock that had soared year-to-date (up over 100%), is extending losses.
Palunteer was down as much as 9% in Tuesday's trading session alone and opened lower, down nearly 3%.
An analyst still believes Palunteer could grow valuations and that healthy pullbacks will occur.
Month-to-date, Palunteer is down about 5%, and over the past three days, it's down more than 14%.
Investors are pulling away from tech stocks due to fears of a pullback in AI.
Some caution may be warranted in cyclical parts of tech, but broader AI sector long-term growth and resilience are seen as strong.

A significant sell-off is affecting tech stocks, particularly those involved in AI. Concerns about supply constraints for critical chips and geopolitical factors are creating investor anxiety. Stocks like Palunteer, which had seen massive gains, are now experiencing sharp declines, signaling a potential correction in the tech sector.

"What we're exactly we're seeing right now as we open is all major individual stocks that led the losses on Tuesday extend into this morning's uh you know bit of a sell-off here."

Target's Leadership Change and Retail Earnings [3:50]

Target has named Michael Fideli as its new CEO, effective February 1st, 2026.
Fideli will succeed Brian Cornell, who has led the retailer since 2014.
Target reported another "horrible quarter," battling tariffs and cautious shoppers.
Lowe's earnings were more upbeat, and the company announced an $8.8 billion acquisition.
Investors are getting a reality check on tech stocks, with momentum favorites like Palunteer getting "drilled."
Nvidia is seeing mixed action, raising questions about whether the tech trade is correcting.

A major development in the retail sector is Target's upcoming CEO transition, with an insider taking the helm. This news comes as Target reported weak earnings, contrasted with a more positive outlook from Lowe's, which is also pursuing a significant acquisition. The retail earnings season is in full swing, providing insights into consumer spending and company performance.

"Number one, a new CEO taking aim at Target's future."

Target CEO Shakeup and Retail Strategy [4:54]

The stock market is not reacting well to the news of Michael Fideli becoming CEO of Target.
The market's concern is that the company needs an outsider, not a handpicked successor.
Target is reportedly down two-thirds from its highs, and a return to $270 is not expected soon.
Brian Cornell "ran out of gas," and the market doubts Fideli has "earned" the CEO position.
The company needs a clear direction and a cleanup of its business model.
The new CEO needs to shake things up and cannot rely on a honeymoon period.
Target needs a "kick in the ass," and its stores need to be cleaner and more welcoming.
Spending on stores and staffing has been cut back, requiring a focus on basic improvements.
A more welcoming store environment can lead to impulse buys and increased sales.
Target is struggling with its identity and direction, and the new CEO faces a significant challenge.
An outsider might be less forgiving of the existing culture and could drive a more aggressive turnaround.

The appointment of Michael Fideli as Target's next CEO is met with market skepticism, as analysts believe an external perspective is needed for the struggling retailer. The company's strategic issues, including store conditions and a lack of clear identity, require immediate and decisive action from the new leadership.

"What Target needs is kind of to be blunt, a little kick in the ass, and they need the stores clean."

Retail Earnings Analysis: Target vs. Competitors [7:34]

Target reported earnings down year-over-year, with sales in stores down 3.2% and margins under pressure due to tariffs and discounts.
There is no excitement for investing in Target stock based on current conditions.
Target has structural problems, needing to invest in e-commerce while balancing sales and margins.
Home Depot and Lowe's are considered quality investments, with Lowe's potentially being cheaper but Home Depot offering higher quality.
Home Depot's move into the higher-end pro business is facing competition.
Lowe's is seen as coming a bit late to the pro business game.
TJX (TJ Maxx) is a long-term holding with a specific strategy that customers love, and it is in a "sweet spot."
TJX operates in a different ecosystem than Target, with a successful "treasure hunt" model.

While Target faces difficulties, other retailers like Home Depot and Lowe's are showing more promise, with strategic investments and solid performance. TJX is highlighted as a strong performer due to its unique business model that resonates well with consumers.

"We don't own Target. We've been watching it for a while and we don't think that this is uh the news that would get us involved in it."

Walmart's Momentum and Competitive Edge [9:30]

Walmart is expected to report good numbers and will likely benefit from Target's struggles.
Target's same-store sales growth continues to slump, while Walmart is gaining market share.
Walmart's momentum is expected to continue, with same-store sales projected to grow around 4%.
Walmart has been successful in attracting consumers, including high-income demographics that Target previously targeted.
Walmart's strengths lie in its grocery offerings, convenience, and same-day delivery options, including for pharmacy.
This combination of grocery, convenience, and delivery positions Walmart as a strong one-stop shop.
Walmart's low prices are a key attraction for consumers in the current economic environment.
Target has not matched Walmart's success in connecting with consumers, especially recently.

Walmart is poised to capitalize on Target's weaknesses, showing strong growth in same-store sales and attracting key consumer demographics. Its focus on groceries, convenience, and delivery services has created a compelling value proposition that Target has struggled to replicate.

"Walmart has been able to win over consumers, especially those key high-income consumers that Target really had a sweet spot on."

Tech Trade Correction and Investor Behavior [10:54]

Investors are experiencing a "kick in the ass" today with stocks like Palunteer.
The high valuations of some tech stocks, such as Palunteer trading at 300-500 times forward earnings, are considered ridiculous.
The tech correction is just beginning, and there are still fairly inexpensive companies making good stock moves.
Companies like TJX may not generate excitement but offer stability, unlike stocks with extreme P/E ratios.
Investors who are too "twitchy" about market dips should sell earlier rather than later.
"Workaday" stocks like Walmart, which has a solid base around $100, are expected to report good numbers and benefit from Target's issues.
Investors should consider rotating into different stocks and taking a breather from tech.

The tech sector is undergoing a significant correction, driven by concerns over inflated valuations. Investors are being advised to diversify, consider more stable "workaday" stocks, and avoid overly speculative bets on companies with unsustainable price-to-earnings ratios.

"It, you know, no, just give it a rest. Everything has needs a pause. If you're going to be so twitchy that that it's going to shake you out, then you're better off selling earlier rather than later than than just riding it out and living in denial right now."

Long-Term Tech Investment Perspective [12:21]

The firm's clients expect to make money for their retirements, emphasizing a long-term investment horizon.
The belief is in diversified portfolios with good companies that have strong long-term track records.
Plenty of tech companies fit this long-term category, including Palunteer.
Valuation, while not immediately critical, eventually matters significantly.
Corrections are expected when stocks reach highs, similar to the 2022 correction which lasted six months.
Tech has experienced much longer correction periods in the past, but strong companies have historically recovered.
As long as fundamentals are good, riding out corrections is expected for these companies.
When fundamentals change, even for "mag seven" companies, it's time to reassess.
Apple and Tesla are considered companies where fundamentals might be shifting, while others are still competing well and growing revenues and earnings.

Despite current market volatility, the view remains that well-established tech companies with strong fundamentals can offer long-term investment opportunities. However, valuation remains a crucial factor, and investors should be prepared for corrections and reassess when underlying business fundamentals deteriorate.

"We're a little bit longer term investors. Our clients expect to make money um, you know, for their retirements and etc. So, we believe in diversified portfolios."

Abercrombie & Fitch and Analyst Ratings [13:50]

A City analyst has downgraded Abercrombie & Fitch's rating to neutral from buy ahead of its August 27th earnings release.
The analyst expects Abercrombie to beat earnings due to strength at Hollister.
However, investors may overlook earnings and focus on negatives like the impact of tariffs and the start of the third quarter amidst consumer uncertainty.

An analyst has lowered their rating on Abercrombie & Fitch, citing potential investor focus on macro-economic headwinds and consumer sentiment over anticipated strong earnings driven by its Hollister brand.

Tesla Robo Taxis and Valuation [14:15]

Elon Musk is reportedly pulling back from creating the "America Party" to focus more on his companies.
This news has sparked renewed interest in Tesla.
An analyst from William Blair, Jed Dorshimer, rode in robo taxis in Austin and found the experience "very exciting" and offering a "glimpse into the future."
Dorshimer values the robo taxi business at $290-$298 per share based on operating profit potential.
He has a price target of $357 on Tesla stock.
A significant portion of Tesla's current stock price reflects the potential of robo taxis.
Concerns exist about valuing a business with only a few robo taxis on the streets, with the $298 per share valuation for robo taxi business being questioned as aggressive.
Some believe Uber might be a more likely player in ride-sharing due to its customer reach and potential deals.
Tesla's valuation is hard to predict as it relies on numbers from 10 years in the future.
There is a history of "vapor wear or vapor hardware" with promised technologies not being ready on schedule.
Patience is advised for investing in Tesla until more tangible fundamentals are available.
Tesla's stock price movements have historically been tied to Elon Musk's political involvement and announcements.
The stock is down more than 2% today as Musk appears to be abandoning plans for a new party.

The potential of Tesla's robo taxi business is a significant factor in its valuation, with some analysts assigning substantial per-share value to this future venture. However, skepticism remains regarding the current tangible progress and the speculative nature of these projections, with comparisons drawn to other ride-sharing platforms.

"Jed also came back with some interesting numbers on the financial potential for robo taxis. He values the robo taxi business at $290 $298 a share based on its operating profit potential."

Ford, GM, and the Future of Driving [17:46]

The discussion questions the implications of robo taxi potential for companies like Ford and General Motors, which are currently focused on manufacturing traditional cars.
It is noted that Tesla is not yet making robo taxis either.
Valuing a business based on a future concept like robo taxis, where individuals are passengers rather than drivers, is challenging.
A capitulatory moment, rather than analyst upgrades or downgrades, is seen as a buying opportunity for stocks.
The current tech sell-off means investors in these stocks should be accustomed to dips.
For those who have missed the rally, it might be too early to buy into many of these names, including Tesla.
Tesla is described as a high beta stock that will likely slog along as a function of the market.

The rise of robo taxis raises questions about the future role of traditional automakers like Ford and General Motors. The investment thesis for stocks like Tesla is being scrutinized, with a focus on identifying true buying opportunities during periods of significant market pessimism rather than simply chasing trends.

"I mean, we're not even going to be driving cars anymore."

Housing Market Recovery and Affordability [20:28]

Home Depot and Lowe's are making significant acquisitions in the building products sector.
Thirty-year mortgage rates have decreased from their highs.
Sales for luxury homes remain strong, according to Toll Brothers.
The question is whether it's time to "go all-in" on a housing recovery.
The long-term story for homebuilders is positive due to the need for more houses.
However, affordability remains a major problem, with housing prices and interest rates being too high.
A drop in mortgage rates from 7% to 6.7% is not sufficient; rates need to get below 5%.
The Fed's potential rate cuts are uncertain, and a significant decline is not expected soon.
The housing market is currently "locked," with homeowners hesitant to move.
Investors should wait for interest rates to decrease or for the housing market to "crack."

The housing market faces a critical challenge of affordability, with high prices and interest rates hindering a full recovery. While some segments like luxury homes show strength, a broader rebound for homebuilders is contingent on a significant drop in mortgage rates, which is not anticipated in the immediate future.

"But there's one simple problem, and that's affordability. Uh housing prices are too high. Uh and interest rates are too high."

Retailer Strategies and Market Pricing [21:38]

People are betting on Lowe's, which has seen a significant stock move (around 20%) from its recent lows.
Lowe's had a positive quarter, indicating customers are undertaking projects again.
Home Depot and Lowe's are well-run companies that need macroeconomic help.
Their stocks are already pricing in a rate cut.
There's a respectful disagreement with the Home Depot CEO's assessment of excitement for rate cuts; the CEO likely desires them.
Lowe's is presented as a way to play a market recovery, being a relatively inexpensive stock that's executing well and breaking out.
Lowe's doesn't necessarily need a full housing cycle to recover; it just needs consumers to spend more.
The stock is priced for this scenario.

Investors are showing confidence in Lowe's, which has seen a notable stock rally based on positive quarterly results and the expectation of a market recovery. While both Home Depot and Lowe's are strong companies, Lowe's is seen as a more attractive play due to its current valuation and execution.

"And we're still a relatively inexpensive stock that's just betting on a bit of a recovery. And they don't need necessarily an entire housing cycle to kick in. They just need people to open their wallets a little bit more."

Target's Future and Board's Decision [22:48]

Michael Fideli is scheduled to start as Target CEO on February 1st, 2026.
Given the stock's decline, there's a question of whether this start date will hold or if the board will make a different decision.
The board is questioned on whether they are "go-getters" who will take aggressive action.
Fideli will likely get a chance to lead, as he's not seen as a bad CEO who would intentionally run the company into the ground.
The choice of Fideli is considered curious, as the board had an opportunity to provide a significant "kick in the backside" to Target.
The board missed a chance to be objective and address Target's loss of share and unclear identity.
The stock's current performance reflects this missed opportunity.
While Target is relatively cheap and people might want to "buy the dip," there are better investment opportunities.
The advice for Fideli would be to go "guns blazing" early, stand for something, and focus on cleaning up the stores and increasing spending there.

The board's decision to appoint an insider as the next CEO of Target is questioned, with the timing and effectiveness of this transition in doubt given the company's struggles. The consensus is that while the new CEO will likely get a chance, the board missed a crucial opportunity to enact more aggressive change for the struggling retailer.