Now may be the time to pick up two retail stocks.
Target (NYSE: TGT) was a top performer in 2019, delivering a 97% return last year. But since the start of 2020, the retailer has dropped nearly -10% after reporting weaker-than-expected holiday sales.
However, one expert says it’s time to buy the dip.
Target “is giving us fundamental investors an opportunity because it’s pulled back,” said Nancy Tengler, chief investment officer at Laffer Tengler Investments. “The e-commerce sales were particularly disappointing, but it’s nothing they can’t fix. I think if it sells off further, I’m actually interested in stepping in at these levels.”
Miller Tabak’s Matt Maley agrees with Tengler and said Target’s chart reinforces the thesis.
“When we look at Target, that stock had gotten overbought earlier in November, rolled over and is now very, very oversold,” Maley said, adding that such a signal is a buying opportunity.
Maley pointed out that Target’s RSI—or Relative Strength Index—is approaching oversold levels. When it has done this in the recent past, the stock has then rebounded sharply.
Maley added that Target is also “testing its 100-day moving average. That has provided very good support for the stock. Now,… the last two times it got to that level, it did dip below it, so, I do agree: it could go a little bit lower from here over a very short-term basis. But that should provide a great opportunity to buy the stock.”
Cowen analyst Oliver Chen also likes Target, rating it an Outperform. Chen has a $150 price target on the retailer – 30% higher than the current price.
“We believe Target remains an attractive domestic beneficiary of a strong U.S. consumer backdrop given low unemployment rates, wage growth, and strong consumer confidence,” Chen wrote in a note, adding that Target shares may “take a short breather” before continue to rise again.
Another retailer that’s ripe for the picking is Costco (NASDAQ: COST).
Costco shares have started the year off fairly strong with a gain of 6.45% year-to-date.
And Oppenheimer’s Ari Wald says there’s more upside ahead for the wholesaler.
Costco had “a great run of outperformance in 2019,” Wald said. “It got to a very extended condition in September. Since then, it’s corrected back to its 200-day average. It’s worked off those overbought excesses, maintained the uptrend. Now [it’s] starting to inflect higher again. We think that long term run of outperformance is just getting started again.”
Oppenheimer analyst Rupesh Parikh upgraded Costco this week, rating it an Outperform and boosting his price target from $300 to $335. Parikh added that he is “re-establishing the stock as a top pick” after downgrading it back in September.
Parikh noted that Costco shares have lagged the market recently. The stock has only risen roughly 3% since late August, which is far below the Nasdaq’s 14% rise in the same time frame.
“With a now more accommodative valuation on a relative basis, the potential for well above peer top-line trends set to continue, and prospects for a special dividend, we again see the case for outperformance,” Parikh wrote in a note.
“We look very favorably upon Costco’s long-term prospects,” the analyst said.