Target (TGT) fell to a 52-week low recently, as the company's shares shed nearly 5% on news of weaker same-store sales. The company lowered its July same-store sales guidance from a 4-6% rise to the 3-4% range. The company did not issue any further details or reasons for the reduction in guidance.

In response to the forecasted decline, AG Edwards cut its recommendation from buy to hold, along with its 2007 full-year earnings guidance, which it cut to $3.06 from $3.10.

Target has been a strong performer in the retail space over the last few years, and its shares have nearly doubled from the lows it posted at the start of 2003. This is, in part, due to the strong operational performance of the company in 2005, which saw revenue and earnings increases of 12.3% and 27%, respectively. Target has also benefited from the weakness Wal-Mart (WMT) displayed over the same period, as employee costs and decreasing margins have plagued the world's largest retailer.

Recently though, shares of Target, along with the retail sector overall, have faced pressure as concerns of an economic slowdown have increased due to higher energy prices, and continued interest rate hikes. It is becoming more and more likely that consumers will start to feel a real pinch at the register and reduce their spending. This will only continue to hurt Target and other retailers.

Of course, when investors look for shelter during periods of economic downturn, consumer staples are often considered the first line of defense. With Target and Wal-Mart being discount retailers, they sell a large number of consumer staples, there is an argument that they could be good investments during times of an economic slowdown.

But in reality, it would be a difficult case to make, as both retailers' main demographics are those who would be hit hardest by increasing living costs, which will likely lead to continue same-store sales declines, and pressure on the companies shares. Within the retail segment, however, these companies will likely be the best bet, as other companies are much more susceptible to the downside effects of economic slowdowns.

For example, electronic retailers such as Best Buy (BBY) and Circuit City (CC) would likely be harder-hit as consumers put off the purchase of high-end TVs, which have been a strong performer for both companies in the past year. Concerns should also be placed towards the home improvement retailers such as Home Depot (HD) and Lowe's (LOW), as homeowners would likely put off renovation plans.

If you think that an economic slowdown is a foregone conclusion, you are likely to do better playing the more notable defensive industries. Look for companies within the pharmaceuticals industry, such as Johnson & Johnson (JNJ) and Proctor & Gamble (PG), or within the food industry such as Kroger (KR) and Safeway (SWY).

In the short term, it may be wise to avoid the retail sector and have a wait and see attitude.

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
Trading Center