For years, big-box retail giant Target (NYSE:TGT) has stood in the shadow of bigger competitors Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN). That said, I like to buy great companies on pullbacks. And Target stock is a quiet but potentially lucrative favorite when opportunities arise.
If the broader stock market does offer a chance to own TGT stock shares at a reduced price, retail-niche investors would be remiss to pass up on such an opportunity. Even if the market doesn’t correct, however, I still like Target as conditions are ripe for substantial price appreciation.
And here’s why.
Consumers Are Still Consuming
As you may recall, last year’s holiday season was a real nail-biter for big-box, brick-and-mortar retail outlets. Why? Because they feared that everybody would stay home and shop at Amazon. Exacerbating this concern was a shortened holiday season, as Thanksgiving of 2019 didn’t happen until Nov. 28. In turn, the holiday-shopping window was shorter.
Those fears turned out to be entirely unfounded, however. Even with the curtailed holiday season in play, consumers came out in full force and shopped with vigor.
In total, the National Retail Federation (NRF) stated that holiday sales increased by 4.1% compared 2018. And overall, the sales amounted to $730.2 billion for the season. This figure beat the NRF’s expectations, and strengthened the case that any reports of retail’s death were greatly exaggerated.
NRF Chief Executive Matthew Shay explained how holiday-season consumer strength bolstered not only the retail sector, but the economy in general:
“These numbers validate continued optimism for increased investment and opportunity in the retail industry. This is a consumer-driven economy, and by any measure, the consumer has put the economy in a solid position for continued growth. This is a strong finish to the holiday season, and we think it’s a positive indicator of what’s ahead.”
Targeting Growth Drivers
Along with strong consumer activity, another potential headwind for Target stock and the overall market is inflation. Currently, the U.S. annual inflation rate is up to 2.5%, and the Federal Reserve has expressed a willingness to allow inflation to run past its former target of 2%. With that, Target is well-positioned to benefit from rising inflation, as consumers tend to flock to discount big-box retailers when product prices rise.
Moreover, favorable macroeconomic conditions — coupled with renewed strength in consumer confidence and borrowing — should put Target stockholders in good standing through at least 2020’s first half. This outlook appears to be confirmed by Bank of America analyst Robert Ohmes, who noted a favorable reading in BoA’s Discount Store Demand Indicator:
“By month, the indicator accelerated in January and is tracking well above last year’s levels, signalling a strong finish to F4Q that has continued into F1Q.”
From this, Ohmes extrapolated Target’s probable growth in first-quarter 2020 same-store sales. Also, he assigned Target stock a “buy” rating along with an ambitious but not unreasonable price target of $150.
So if the stock market corrects, then $150 might be out of range for TGT stock. However, that could be a perfect excuse to add shares to your portfolio until the company gets back on track.
The Final Word on Target Stock
Overall, Target stock doesn’t need to reach $150 in the near term to get an “A” rating from me; There are growth drivers in place to get it there sooner or later.
If the stock market does pull back, though, consider it a chance to take a stake — or add to your position — in a discount retailer with strong rebound potential.
As of this writing, David Moadel not hold a position in any of the aforementioned securities. David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.