Walmart (NYSE: WMT) and Target (NYSE: TGT) are two of the top retailers in the country, and they can make for great investments in the long run as the economy grows. But Walmart is trading at a 52-week high, and its valuation is expensive. Target, meanwhile, is largely a discretionary play, and while it's coming off a decent quarter, it's expecting minimal growth this year.
With both of these stocks, you're taking on some risk, ultimately tying back to their respective growth rates. Walmart's valuation may unravel if its growth rate doesn't remain high, and Target may not be the bargain buy it appears to be without better sales numbers.
Rather than taking a chance on those two stocks, there's a potentially better option for you to consider, and that's TJX Companies (NYSE: TJX) .
TJX's growth rate is comparable to Walmart's and better than Target's
TJX owns multiple brands, including HomeGoods, Marshalls, and TJ Maxx. The off-price retailer can make for an appealing discretionary stock to own as its low-priced clothing and other products can give consumers a way to bargain hunt even amid challenging economic conditions.
On Aug. 21, TJX reported earnings for its latest quarter, ended Aug. 3, and its comparable-store sales were up 4% -- which was above expectations. The company says it was primarily due to an increase in the number of customer transactions (as opposed to higher prices).
That's a similar rate to Walmart, which reported comparable-sales growth in the U.S. of 4.2% (for the period ended July 26). The big-box retailer, however, also sells a wider variety of products than TJX, and groceries are a big part of its sales.
Target, meanwhile, generated comparable-sales growth of 2% (during the same period as TJX), which was at the high end of its expectations. However, the company believes that this number will fall on the low end of its 0% to 2% range for the full fiscal year (ending in January). This possibly indicates that the strong, recent quarter isn't indicative of a more bullish overall trend in the market.
Investors are getting good bang for their buck with TJX
Neither Walmart nor Target delivered results that would suggest they are doing exceptionally better than TJX. And that makes TJX attractive given its current price-to-earnings (P/E) multiple , which falls between that of the other two stocks.
TJX PE Ratio data by YCharts.
True, Target is trading at a big discount to its two peers right now. But given its underwhelming growth rate and the possibility for more of a decline in the future (especially as its shoppers may find TJX's lower-priced products more appealing amid worsening economic conditions), the discount may be warranted.
TJX is a good buy now and for the long haul
It may be tempting and easy to go with Walmart's stock right now. The business is doing well and growing, and it's a familiar brand. But with TJX, investors can get more value for their money in a better-valued stock. Despite its strong results, it hasn't been as hot of a buy as Walmart has been -- TJX is up 30% this year while Walmart has soared 45% (Target is up around 12%).
Rather than pay an egregious multiple for Walmart or taking a chance on Target and its sluggish growth, investors should consider buying TJX stock right now. The company's brands appeal to discount shoppers, and that can make it a good growth investment to hold even if economic conditions worsen in the near future. And at a relatively modest valuation, investors don't have to worry about paying too high of a premium for the business.
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 recommends Tjx Companies. The Motley Fool has a disclosure policy .
Most Popular
Comments / 0