Why Target Stock Could Be a No-Brainer Buy Right Now

The economy appears to be in a fairly stable situation. It's still growing, optimism remains strong as the stock market is doing well, and the overall outlook isn't that concerning.

Investors, however, are worried that discretionary spending has not been all that strong, and that has resulted in a stock such as Target (NYSE: TGT) coming under pressure. In the past six months, it has fallen by 3%, which looks awful when compared to rival Walmart, which has climbed by 45% over the same stretch.

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You might be tempted to jump on Walmart's bandwagon, but here's why I think Target may be a no-brainer buy at its current price.

There are signs discretionary spending is picking up

Inflation hasn't gone away, but it's a little more under control these days. Prices aren't coming down, but at least there's more predictability for consumers of late, although potential tariffs could pose a new risk to the market. For now, though, it's too early to tell whether tariffs will pose a long-term problem, or if they prove to just be a negotiating tactic.

Assuming that they won't end up being a long-term concern, there is reason to be optimistic that discretionary spending could be stronger in future quarters. Target says that holiday spending in 2024 was up 2.8% (during the months of November and December), with its comparable growth rate at around 2%.

December also marked the eighth straight month in which traffic was up on a year-over-year basis. Should that trend continue, it could be a sign that Target's sales may be a bit better than expected in upcoming quarters.

Even if discretionary spending doesn't pick up drastically this year, perhaps because tariffs derail those hopes, in the long run it's still likely to increase as the economy expands. And when it does, that can be great news for Target, especially given its modest valuation.

Target looks dirt cheap

Target's stock hasn't been soaring over the past year, which isn't great for shareholders. But that can make it an attractive option for investors who are looking for a good value right now. The retail stock currently trades at about 14 times its trailing earnings. This is a much lower multiple than what it has averaged over the past five years.

TGT PE ratio, data by YCharts; PE = price to earnings.

And it looks even cheaper when you consider how expensive the market is today. The average stock on the S&P 500 is trading at more than 25 times its trailing earnings.

At such a modest multiple, Target's stock is priced at a discount that can provide investors with a good margin of safety should its earnings numbers or guidance end up being underwhelming this year.

A good one to buy and forget about

The retailer's business may be struggling to generate much growth, but its fundamentals are still solid as the company remains profitable and is generating free cash flow. This is a business that isn't in any near-term danger, and it can be an investment you can confidently hang on to.

Plus, it pays a dividend that yields 2.9%. And with it also being a Dividend King with an impressive track record for growing its payouts, there's plenty of reason to simply hold the stock and collect all that recurring income it will generate for your portfolio.

This year may be another rough one for Target, depending on how strong the economy proves to be and what impact tariffs may have. That's why buying the stock and simply forgetting about it may be a great move, to avoid the temptation to sell if there are any hiccups along the way, since it still looks like a great no-brainer investment to buy and hold over the long haul.

Should you invest $1,000 in Target right now?

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool has a disclosure policy.