Sometimes, sympathy sell-offs in the stock market make no sense. Retail giant Walmart Inc (NYSE:WMT) reported worse than expected quarterly numbers while delivering a weaker than expected 2018 profit guide. WMT stock sunk and dragged its most direct competitor, Target Corporation (NYSE:TGT) with it. This makes TGT stock a buy.

If you take a deeper look, the sell-off in Target stock makes no sense. Indeed, over the next several months, I think Walmart stock will continue to fall while TGT stock will head higher. Here’s why.

Walmart Weak, Target Strong

I’ve been warning about weakness in Walmart stock for a while now on the premise that the stock had grown too richly valued relative to TGT stock.

Over the past several years, these two companies have been valued very similarly. Specifically, over the past 5 years, both TGT and WMT stocks have traded around 16 to 17-times trailing earnings, 15 to 16-times forward earnings, 8 to 9-times cash flow, and 8-times EBITDA.

But thanks to supercharged e-commerce growth last year, Walmart stock got a huge valuation bump that Target stock never received. Indeed, even after the recent sell-off, Walmart stock still trades at nearly 21-times trailing adjusted earnings of $4.42 and more than 18-times forward earnings of $4.98.

Those are still big premiums to historical averages.

Target stock? Assuming holiday earnings come in as expected (which is likely considering the company already announced holiday sales), Target stock is trading at less than 16-times trailing earnings of $4.72 and right around 14-times forward earnings of $5.25.

Consequently, when I see Target stock fall on bad news from Walmart, I scratch my head. Walmart stock is overvalued. It got ahead of itself, and was due for a sizable pullback on any operational hiccup. That hiccup happened in the fourth quarter. The stock reasonably fell. And it will continue to fall as the valuation normalizes back to historical standards.

The valuation on Target stock will also normalize to historical standards. But because Target stock is trading at just 14-times forward earnings (versus a five-year average between WMT and TGT of roughly 15.5), that normalization will send Target stock higher.

If you throw that average 15.5 forward multiple on Target’s 2019 earnings estimate of $5.25, you get to a TGT stock price of over $80.

In other words, Walmart stock strongly outperformed Target stock last year. Walmart was killing in it on the digital front, while Target was struggling to comp positive. But that script has flipped (as one would expect it to in a competitive and dynamic market), and now, Target is putting up better comparable sales numbers than Walmart.

And so begins the normalization process. Over the next several months, Walmart stock will normalize down, while Target stock will normalize up.

Bottom Line on TGT Stock

This far into a bull market, it is tough to find stocks trading at a discount to their trailing five year average valuation. After all, the S&P 500 is trading at 17.1-times forward earnings versus a five-year average forward earnings multiple of 16.

Target stock, however, is one of the value gems that is trading at a discount to its trailing five year average valuation. Considering the company is putting up its best comp number in three years and is looking at super-charged earnings growth thanks to tax cuts, I don’t think the discount on Target stock is warranted.

As such, I think Target stock will trend to above $80 over the next several months, regardless of what Walmart stock does.

As of this writing, Luke Lango was long TGT.