Top Stocks to Double Up on Right Now

It's tempting to buy stocks that have underperformed the market, particularly if you already own the shares. However, investors should use care. After all, investors are pretty astute, and the stock prices have dropped for a reason.

Sometimes, it's a reaction to short-term factors. Hence, it's important to examine the company to determine whether the long-term investing thesis remains intact.

Target (NYSE: TGT) and Walt Disney (NYSE: DIS) have both fallen out of favor with the market. But patient investors should use this opportunity to buy shares in these two stocks.

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1. Target

Target earned a special place among retail shoppers. Its cool, differentiated merchandise made it a popular shopping destination.

However, the company's recent results have been lackluster, suggesting Target has lost its way. The company's fiscal third-quarter same-store sales (comps) dropped 2.7%. The decline was caused by lower traffic, responsible for 2.2 percentage points, and decreased spending, which accounted for the balance.

Certainly, you can attribute some of the faltering sales to challenging broad economic conditions, including persistently high prices that have hurt overall consumer spending.

There have also been certain management actions that have hurt traffic and comps. The company got away from its differentiated merchandise offerings. However, Michael Fiddelke, who will officially become CEO in about three weeks, has stated his plan to return Target to offering goods that make it appealing to shoppers. He's also planning to make the shopping experience better by updating stores and investing in technology.

The stock price has fallen 23% over the last year, through Jan. 7. During this time, the S&P 500 (SNPINDEX: ^GSPC) gained 17%. That translates into a better valuation, measured by the price-to-earnings (P/E) ratio.

Target's shares trade at a P/E ratio of 13, down from 15 a year ago. The stock's P/E multiple is less than half that of the S&P 500's 31.

At some point, economic conditions will improve, and I believe the new CEO will draw customers by returning Target to its roots. When that happens, the stock price will increase through earnings growth and P/E multiple expansion.

2. Walt Disney

Disney created an uproar when it suspended late-night host Jimmy Kimmel for on-air comments. The publicity wasn't good for the company's public image nor its business, with groups threatening boycotts.

However, that shouldn't detract investors from looking at Disney's sprawling media enterprise. While the backlash seems to have passed, Disney's assets will continue to drive long-term profit growth.

Its business consists of three segments: entertainment, sports, and experience. Entertainment includes linear networks (cable and broadcast networks like ABC and the Disney Channel); direct-to-consumer (Disney+ and Hulu streaming services); and content production (including television and movie content distributed via studios like Walt Disney Pictures, Lucasfilm, Marvel, and Pixar). The sports business is the ESPN network and streaming service, and experiences include theme parks and cruises.

It's a lot of moving parts, but certain businesses have undoubtedly been hurt by weaker broad economic conditions, including stubbornly high prices that have hurt consumer spending. The company's fiscal fourth-quarter revenue dipped 0.5% year over year to $22.5 billion. The period ended Sept. 27.

While certain businesses, such as linear networks, face major long-term challenges, Disney's other assets remain well positioned for future growth. This includes the broad high-quality television and movie content, streaming services to air its content, and theme parks that provide unique experiences.

Over the last year, Disney's shares gained a scant 1.7%. However, the tepid stock movement has created a much better valuation. Disney's stock has a P/E ratio of 16, about half the multiple it sold at a year ago. The shares also sell at a much lower valuation than the overall market, based on the S&P 500 index.

Strong media properties and an attractive valuation make Disney's stock a compelling buying opportunity.

Lawrence Rothman, CFA has positions in Target. The Motley Fool has positions in and recommends Target and Walt Disney. The Motley Fool has a disclosure policy.