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3 Reasons to Buy Target Stock

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The retail space has never been more competitive and pressure on brick-and-mortar retailers has never been higher. In the first quarter, Target (NYSE: TGT  ) reported a 0.6% decline in same-store sales and its biggest competitor Wal-Mart's (NYSE: WMT  )  same-store sales fell 1.2%. Meanwhile, (NASDAQ: AMZN  ) grew revenue 22%, showing that online retail is taking significant share.

But it's not time to sell all brick-and-mortar retailers, and Target is one company with a few advantages over the competition. Here are the three biggest reasons to buy its stock right now.

Online tax bill
The bill floating through Congress that would allow for the collection of online sales tax could be a boon for a company like Target. First, large purchases like TVs may move back into brick-and-mortar stores from online shops, where you can save sales tax. Smaller items, where the sales tax wouldn't be so onerous, may still make sense to make with a company like Amazon because of the free shipping available to Prime members.

The bigger advantage of an online sales tax bill may be in Target's size and infrastructure to pay state and local taxes already. If online retail shops are forced to pay taxes to thousands of different jurisdictions, it would be a nightmare for a small retail shop but would require little change for Target.

If Target can merge online shopping and local pickup -- like Wal-Mart is testing -- it could give the company another advantage of online-only retail.

Classy consumers
The payroll tax increase that took effect on Jan. 1 has hit consumer spending but its impact is felt more by low-income shoppers than those on the high end. As a discount retailer, Target gets its fair share of low-income shoppers but this is Wal-Mart's bread and butter.

With designer clothes and stylish products, Target is going after a slightly more affluent consumer than Wal-Mart, which makes it a little less susceptible to the cost-conscious consumer.

We sell groceries, too
Most importantly, even if online shopping continues to take share in retail, there are products that will never sell well online. Products like toilet paper and groceries are Target specialties and they will keep the company in business even as Amazon continues to grow like a weed.

Both Target and Wal-Mart have really become the new grocery store, serving up food and all of the other staples consumers need. We're a long way from home delivery for bananas and toilet paper so Target will continue to play a key role in retail.

Target stock is a steady retail play
The retail space is tough for brick-and-mortar companies, but Target offers services many online shops won't be able to match. If sales taxes hit online sales in the future, that's another advantage for the company.

Target stock isn't cheap at 15 times earnings, but it's about as steady a retailer as you can get right now and I think that will help it outperform the market.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of the last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

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Travis Hoium

Travis Hoium has been writing for since July 2010 and covers the solar industry, renewable energy, and gaming stocks among other things.

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Related Tickers

10/7/2015 1:21 PM
AMZN $534.09 Down -3.39 -0.63% CAPS Rating: ***
TGT $78.12 Up +0.02 +0.03%
Target CAPS Rating: ****
WMT $66.09 Up +0.41 +0.62%
Wal-Mart Stores CAPS Rating: ***