The holiday season is when retail stocks have their best performance of the year. That’s because holiday sales provide retailers with the chance to see their biggest profits. However, consumers remain cautious after years of inflation. For a retailer to have a good year, it will need to offer bargains this year.
Making value a priority may not mean a big profit margin. But it will mean solid revenues. And it will likely mean that those who don’t offer enough values will fare comparatively worse.
Among the retail giants, Target (TGT) has demonstrated a willingness to cut prices. That’s paid off in the most recent quarter, with the market rewarding the company’s increased store sales.
With holiday deals on deck, Target is likely to further gain, possibly at the expense of many smaller retailers who are unable to lean into deals.
Target is up 27% over the past year, about in-line with the overall stock market. But with shares trading at about 16 times earnings, shares are slightly more attractive compared to the overall market.
Action to take: Investors may like shares as a momentum play, and should look to take profits after the holidays an into the fourth quarter earnings season. At current prices, Target also pays a 2.9% dividend.
For traders, the December $170 calls, last trading for about $3.70, could leverage a further uptrend into mid-double-digit returns.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.