This Passed-Over Stock, 55% Off of Its All-Time High, Is Crushing the Market This Year. Is It the Ultimate Contrarian Stock to Buy Now?

The S&P 500 hasn't moved much this year after three years of double-digit gains. It's less than three months into 2026, so investors shouldn't worry at this point. However, there's going to be a year where things go south -- and it could be this one.

In the meantime, any stock that's gaining this year is more or less beating the market. And there's at least one surprise -- Target (NYSE: TGT) -- which has been losing value for years and is 55% off its highs but is up 22% year to date.

Is Target back in action? Or is this a short-term movement that's not going to last?

Image source: Target.

A new CEO and roadmap

New CEO Michael Fiddelke has only been in the top spot as of Feb. 1, but he's been in training since the announcement in August. He comes from the role of COO, so he's intimately familiar with the company.

It's not hard for anyone who's been following Target, whether as an investor or a shopper, to see how Target has fallen short. It's been having trouble with inventory, and its merchandise hasn't been resonating with its core consumer. Sales have been dragging, while competitors like Walmart and Costco Wholesale continue to enjoy consistent growth.

Fiddelke outlined a plan for Target to get back to its roots as a fun place to shop, with a distinctive flair and owned brands that offer style and value. It's also planning to open more new stores and lean into technology to expand its markets for next-day delivery, where it has always shone. In the fourth quarter, same-day delivery for members increased 30% year over year, and Target has consistently performed well in this area.

I think he nailed it when he explained what Target's customers are looking for:

Target is not an everything store. That's not what guests want from us. They want a strong, trend-forward assortment that they can trust to deliver quality and value.

Now, investors need to see that management can translate that into measurably higher sales and profits.

The proof will be in the performance

Target still has a long road to stability, but the market was enthusiastic about its fourth-quarter results. Sales and comparable sales were slightly down year over year, but adjusted earnings per share (EPS) and adjusted operating income were slightly up. What the market tends to reward is an earnings beat, and adjusted EPS beat Wall Street estimates by $0.28.

The market also liked guidance for 2026 sales to increase about 2% and operating margin to rise 20 basis points. EPS is also expected to increase for the year.

The company is planning to spend an extra $2 billion this year alone to revamp its stores and create more value for customers. It expects that to boost engagement and, ultimately, sales.

That's on top of the $5 billion it had already earmarked for capital expenditures and includes updated floor plans, staff training, and marketing. It expects to open 30 new stores this year and remodel 130 others and will open its 2,000th store later this month.

Is Target stock the ultimate contrarian buy?

It seemed like the market had moved on from Target after it experienced setback after setback. Even with this year's gains, it remains well off its highs. The stock is dirt cheap right now, trading at under 15 times trailing-12-month earnings and 19 times trailing-12-month free cash flow.

Also in its favor is that it's a Dividend King, and its dividend yields 3.8% at the current price. Even if investors are unsure about where the stock price is headed, shareholders will benefit from a reliable, high-yielding dividend. That mitigates some of the risk.

If Target can sharpen its model and get back to what it does best, it could be an incredible investment. That's still an unknown, but since it already offers value in its dividend, investors might want to take small bite right now.

Jennifer Saibil has positions in Walmart. The Motley Fool has positions in and recommends Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.