1 safe stock you can buy now
It’s hard to find a stock that’s right for everyone, especially in today’s unpredictable market. But there is one stock that delivers growth, value, and income, and is poised to outperform both during and after the pandemic: Target (NYSE: TGT).
The big box retailer is a Dividend Aristocrat, and is cheaper on a price / earnings basis than the S&P 500. Yet it still offers substantial growth potential both in the short term and in the long term – especially after the company reported 24.3% comparable sales growth in the second quarter, with sales surging in both. in stores and online, while adjusted earnings per share nearly doubled. Let’s take a closer look at why Target looks like the perfect stock to help overcome the rocky market environment and uncertainty surrounding the pandemic.
Playing the pandemic perfectly
Target’s second quarter was essentially flawless, with skyrocketing earnings growth, in-store and ecommerce execution, and double-digit growth across its five key categories. This momentum continues into the third quarter as well, as indicated by management on the earnings call that comparable sales were up double digits in the first half of August, despite a delay in back-to-school purchases.
Target has spent years investing in omnichannel initiatives, including same-day delivery with Shipt, the service it acquired in 2017, as well as Drive Up and in-store order pickup, providing customers with a wide range of same day execution options. These investments clearly paid off during the pandemic, as shoppers hesitant to enter stores took advantage of these programs. Same-day service sales jumped 273% in the quarter, and stores fulfilled 90% of orders online, helping the company maintain costs down.
The retailer’s wide product range also gives it an advantage, as it helps shoppers limit their exposure to COVID-19. For example, customers can go to a target for groceries, but also buy a shirt, kitchen item, or tech accessory. Attracting customers by selling high frequency items like food and medicine helps Target sell discretionary articles. Even though clothing sales plunged among U.S. retailers overall in the second quarter, Target saw its clothing sales jump double-digit in the quarter. In other words, Americans skip trips to places like Macy’s, Difference, and TJ Maxx, and instead shop for clothes at Target.
Looking ahead to the rest of the year, Target looks set to win on major trading events. Children are already one of its flagship categories and the company has extended its assortment for the start of the school year due to the delay in opening schools in some parts of the country. Halloween also presents an opportunity for the business, as its omnichannel options give it an edge over pop-up Halloween stores where customers tend to rummage through merchandise, as well as established chains like Party town, which collapsed during the pandemic and doesn’t have the kind of e-commerce sophistication Target does.
And Target also looks set for a strong holiday season, as its omnichannel attributes give it an edge over other retailers, as does its product line, especially as it has increased its toy selection during the last years.
The long-term opportunity
The pandemic is creating a fork in the retail sector. There are a handful of winners, like Target, while most retailers, including shopping mall chains and discretionary retailers, are suffering. The list of bankrupt retailers is already long, and Target may be better positioned to gain market share from JC Penney and Pier 1 than any other retailer, as the company’s strength in apparel and home goods gives him an edge over his peers like Walmart and Costco. In fact, the company earned around $ 5 billion in market share in the first half of the year, and it is expected to gain more market share during the duration of the pandemic and beyond, as it will be in a much better position than struggling competitors like Party City, even when the economy will normalize.
Target continues to open new stores as most traditional retailers retreat, and is focusing on small-format locations in underserved and high-density areas, such as urban neighborhoods and college towns, which are getting married. well with its omnichannel strategy. At the same time, Target’s strong private label portfolio sets it apart from other retailers, including Amazon, and gives customers a reason to shop there. In addition, these brands are also more profitable than famous brands. Good & Gather, for example, the own-label food brand Target launched less than a year ago, has already achieved more than $ 1 billion in annual sales, and the company has just added a premium line to it.
The retailer’s fundamentals are about as strong as any stock these days, especially given its growth. It offers a dividend yield of 1.8%, with a history of 49 consecutive years of increase, and is trading at a P / E ratio of 21.
If you are looking for a stock that can withstand the current Market volatility and thrive no matter what happens with the pandemic, Target seems like a great choice.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.