It’s no secret that Amazon (NASDAQ:AMZN) shook up the retail sector, especially the brick-and-mortar boxes. That created a global trend to shift most shopping transactions online. This is not a fad and it is still in its infancy stage so it won’t reverse anytime soon. All retail companies are either already present online or scrambling to get there, so the acceleration is exponential. There are a few winners but most are struggling, Most brick-and-mortar stores continue to suffer even after a decade of the AMZN shock. Some have perished along the way, and many outcomes are still in limbo.
But there are clear winners like Target (NYSE:TGT), Costco (NASDAQ:COST) and Walmart (NYSE:WMT) who are still thriving. Today’s write-up is to share an upside opportunity that could take Target stock to $120 per share.
Year-to-date, Target stock is up 32%, which is at least 17% better than WMT and AMZN and almost double that of Costco. The SPDR S&P Retail ETF (NYSEARCA:XRT) is merely up 2% for the same period. Macy’s (NYSE:M) and Kohl’s (NYSE:KSS) are down 25% in 2019.
Clearly, Wall Street is in favor of Target’s prospects. However, the next few upticks won’t be easy as it is headed into resistance.
Last year ended badly for stocks. The disaster started in October and TGT stock, like the rest of them, fell off a cliff on Oct. 2, but it fought hard a month before finishing the 33% correction from September top to December bottom. But since then, TGT rebounded hard and rallied 45% to recover the entire correction.
When a stock recovers from a massive accident and reaches the ledge from which it fell, usually it encounters selling. Investors who got stuck long TGT close to $90 will want out. Besides pivot zones, this usually creates congestion in price action, which translates into resistance. So, TGT will need time and a few pushes to breach through the October accident scene.
The TGT rally was not sector-wide as only the stars have bounced well. The XRT, M, KSS and JC Penny (NYSE:JCP) did not recover. So clearly investor sentiment still favors owning TGT, WMT or COST in retail.
This is not a coincidence since they have all used thin margins as a power pitch for a long time, even before Amazon. So this made it a fair fight among the four. WMT and COST compete the hardest in that area, but Target lies somewhere in the in the middle.
Even though its stock is up more than the other three winners it is still the cheapest of them as well. TGT has a price-to-earnings ratio of 16, which is half that of WMT and COST and five times cheaper than Amazon.
So why is Target the stock to buy? It’s doing things right and it’s still cheap. It’s just a matter of picking the right entry point.
Since it’s coming into resistance, those who are looking to own Target shares for the long term can start with a partial position now thereby leaving room to build it up in the next few weeks.
More active traders can chase the break out above the highs. TGT stock will attract buyers above $89.20 but then more at $90.50. It is important to note that it could already be in a breakout targeting $97 per share. Crossing the all-time high could raise the target to $120 per share. The bulls have been setting higher lows attacking necklines. They already crossed the one near $83 and the all-time high is the next.
How to Approach Target Stock Now
Fundamentally, Target management found a few niches in technology and fashion and they have avoided many of the typical retail pitfalls. They’ve always been a bargain play but with style and they continue to build upon those tools. They’ve even skirted a few headlines in the past few years, so this team is competent enough to get the job done.
I can say the same for Walmart and COST, but they are both too expensive right now from my taste. Wall Street is giving them too much love so they are vulnerable to negative headlines. Conversely, TGT has less froth to shed on bad news. Yes, it’s more expensive than say Macy’s, but for good reason — cheaper is not always better.
Critics say that Wall Street is too flippant in the face of many concerns. But this time, unlike like last year, the Federal Reserve are no longer raising rates, in fact consensus is that they are going to cut rates maybe as early as this week. So they will prop up stocks if they need to, even though we have full employment and a strong retail environment.
This is pretty close to Utopia, where good and bad economic news are good for stocks. This is why the bears are unable to maintain selling pressure on the indices too long, unlike they did last fall. The buy-the-dip-gang is in full control … for now.
Case in point, sellers tried to break the Target stock rally in April but they failed. Buyers successfully defended it and finished the rally job.
In summary, there are few winners in the retail sector and among them TGT stock is most interesting now. But since we are still in the middle of a whirlwind of geopolitical headlines, it’s best to start with a partial position thereby leaving room to add some more ever time. After all the equity markets are near all-time highs so they are vulnerable to corrections.