For those who are healthy, one of the toughest challenges undoubtedly has been the forced mass-scale quarantining. I’ve mentioned before in past articles that we are social creatures. Without social interaction, many investors may question the longer-term viability of big-box retailers like Target (NYSE:TGT). Aside from the panic buying, is there enough incentive to buy Target stock?
Although shares have demonstrated strong bullish sentiment over the last several days, I can appreciate the hesitation. Over a three-week period, approximately 16.8 million Americans filed for unemployment benefits. To put this figure into perspective, this represents approximately 11% of the U.S. labor force.
At some point, Target has to be more than a supplier of food, water and emergency goods. Further, those who are buying now may not be buyers tomorrow. Eventually, Target stock will move on broader economic metrics.
However, you must also keep in mind that demand has been incredibly robust. Driving by my local Walmart (NYSE:WMT) and Costco (NASDAQ:COST), I’m fascinated that consumers are still packing the parking lots for popular big-box retailers. That tells me that when the coast is finally clear, we will witness a resurgence in demand.
Obviously, that’s a net positive for Target stock. And here are three more bullish arguments to consider.
Food-at-Home Surge to Benefit Target Stock
A few days ago, the Bureau of Labor Statistics released its consumer price index for March. To no one’s surprise, we saw a one-month decline on a seasonally adjusted basis. What was surprising, though, was the modest rate of that decline, only 0.4%.
Obviously, the main laggards against the broader CPI benchmark were the hardest-hit industries: we’re talking energy, gasoline prices and the airliners. But necessary items like food saw a one-month uptick.
Within this category, what’s most important for Target stock is the CPI for food at home. Naturally, with most states issuing stay-at-home orders, consumers are incentivized to eat in. Plus, this is far more budget friendly.
In March, CPI for food at home registered 244.9 points, up 1.07% on a year-over-year basis. This is particularly impressive because in March 2019, food-at-home CPI increased 1.4% year over year to 242.36 points.
Based on the tremendous demand for the basics, I anticipate a big surge for April.
Of course, Target isn’t the only player in the grocery industry. Aside from its big-box competitors, it must also compete with grocery specialists like Kroger (NYSE:KR). And if you’re a foodie, you’d prefer Kroger over TGT because the former dedicates virtually their entire space to edibles.
But the advantage for Target is that the retailer has ample opportunities for revenue synergies. True, sales during the initial panic reflected that consumers eschewed discretionary items for essential ones. But having grown accustomed to our new normal, the company organically reminds shoppers that they’re more than just a toilet paper outlet.
While you’re out shopping for your groceries, you can peruse Target’s entertainment section. Better yet, because the average Target consumer is more affluent than many of its rivals’ shoppers, that synergy opportunity actually means something.
Because the argument also works in the opposite way. With the health crisis, most shoppers are probably not interested in visiting a store like Best Buy (NYSE:BBY). Unless you’re shopping for a computer for work, electronic goods stores are largely non-essential.
So, while the crisis hurts everyone, Target can snake some market share from consumers who would have otherwise gone to a dedicated retailer. In my book, that’s a plus for Target stock.
Ample Marketing for Alternative Services
Along with humans being social creatures, we’re also creatures of habit. Once we’re accustomed to doing something a particular way, it’s difficult for us to break out of this pattern. Nevertheless, because the pandemic has represented such a massive paradigm shift for us, we’re more willing to change.
Ultimately, this is a positive for Target stock because the underlying organization has ramped up its marketing for alternative services. Typically, most shoppers just hop into their car, buy what they want and go home. But the pandemic has forced us to think in terms of social distancing.
Here, Target offers two viable options. First, they have set aside parking spots for curbside pickups. This is a relatively recent development but will likely surge in popularity due to forced necessity. Second, Target has their ship-from-store delivery, which is quick and easy.
No one wanted this awful crisis to happen because it has disrupted every aspect of society. Yet Target is making the best out of its circumstance. For that, TGT is a clear long-term winner.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.