This week, Derek and the European Dividend Growth Investor discuss the recent 20% price drop in stocks like Target ($TGT) and other companies, along with strategies to handle these volatile situations. Plus, they answer listener questions about stock lending, tariffs under a potential Trump presidency, and how to handle market noise.

Chapters:

• 00:00 – Introduction: What to do after a 20% price drop?
• 02:00 – Market News: Target’s ($TGT) challenges and reaction to guidance cuts.
• 07:00 – Stock Drops in Perspective: Strategies for navigating sudden price declines.
• 15:00 – Market Volatility: Understanding narratives versus fundamentals.
• 25:00 – Listener Questions: Stock lending, communication stocks, and pensions.
• 35:00 – US Tariffs and Macroeconomics: Thoughts on a potential Trump presidency.
• 40:00 – Currency Risks: The Euro’s impact on investing in US stocks.
• 45:00 – PepsiCo and Sugar Taxes: Exploring the implications for dividend growth.
• 50:00 – Realty Income and Tenant Risks: Challenges from Dollar General ($DG).

Companies Mentioned:

Target ($TGT), Amazon ($AMZN), Walmart ($WMT), Walgreens ($WBA), CVS ($CVS), Nike ($NKE), Starbucks ($SBUX), AbbVie ($ABBV), LVMH ($LVMH), Microsoft ($MSFT), Shell ($SHEL) , ASML ($ASML) , Unilever ($ULVR) , Procter & Gamble ($PG) , PepsiCo ($PEP) , Alphabet/Google ($GOOGL) , Dollar General ($DG) , Realty Income ($O)

News of the week

• Target ($TGT): A 20% drop after lowering guidance by 5-8%. Despite a slight year-on-year revenue increase, higher costs and inventory buildup spooked the market. Derek noted it could be a buying opportunity for those with conviction.
• Consumer Sentiment: Strong performances by Amazon ($AMZN) and Walmart ($WMT) highlighted Target’s struggles, particularly its reliance on non-grocery merchandise.

Dividend Hikes

1. McCormick ($MKC): Raised its dividend by 7%, marking 37+ consecutive years of increases.
2. Merck ($MRK): Announced a 5.2% hike, now at $0.77 per share, maintaining its steady growth trajectory.

Handling a 20% Price Drop

The hosts shared practical advice for evaluating major price declines, focusing on:

• Fundamentals vs. Sentiment: Understanding the reasons behind the drop—are earnings deteriorating, or is it just market overreaction?
• Conviction Matters: If you’ve done your research and trust the company, a price drop can be an opportunity to add to your position.
• Examples: Starbucks ($SBUX) and Nike ($NKE) rebounded strongly after similar drops, proving the importance of a long-term perspective.

Key takeaway: Avoid impulsive decisions influenced by social media chatter. Stick to your process and focus on what you know about the company.

Listener Questions

1. Stock Lending Programs: Mixed opinions on allowing brokers to lend out shares. The consensus? Understand the risks and focus on owning your shares outright.
2. Buybacks: Why companies prioritize buybacks over dividends, often driven by executive incentives.
3. Sector Avoidance: Why the hosts shy away from communication stocks like Verizon ($VZ) and AT&T ($T), citing high capital expenditures and debt.
4. Currency Concerns: Is investing in US stocks risky with the Euro falling? Dollar-cost averaging helps mitigate this.
5. Realty Income ($O): Discuss tenant risks from companies like Dollar General ($DG).

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