Target Corporation (TGT) or Costco Wholesale Corporation (COST)? Which Stock to Buy Before Holiday Season

The holiday season is upon us and it’s time to take a closer look at retail stocks to play the shopping frenzy that is about to unleash. In this article we will analyze Target Corporation (NYSE:TGT) and Costco Wholesale Corporation (NASDAQ:COST) and see which stock you should buy to take maximum profits.

Target Corporation (NYSE:TGT)

Target Corporation (NYSE:TGT) is set to announce third quarter results, and analysts think that the stock will gain value as the company is introducing a lot of changes to tackle the volatile dynamics of the retail industry. Target is spending a lot on its digital platform. The company is also remodeling its existing stores. Target Corporation (NYSE:TGT) also plans to open 28 smaller format stores this year, and 108 additional new stores by Fall of 2019. A latest report published on Barron’s said that Target stock could reach $80 because the company is successfully diversifying its revenue. Online sales accounted for about 4.4% of the total revenue in the latest fiscal year, compared to 2.8% reported in 2016. Target is launching new brands to increase foot traffic. The company recently launched its Cat & Jack children’s clothing brand. Target Corporation (NYSE:TGT) ecommerce growth has dwarfed that of Walmart and Amazon. Target’s ecommerce revenue increased by 22.6% between 2011 and 2015, while Amazon’s growth came in at 17.2% and Walmart’s growth was 21% in the same period. Target Corporation (NYSE:TGT) is getting rid of under performing stores and investing money to boost its digital sales. Earlier this month, Target said it will close about 12 underperforming stories in February 2018. Target Corporation (NYSE:TGT) is revamping its stores. The company expects a 2%-4% increase in sales from every store it renovates. By 2019, the company plans to revamp over 600 stores.

Target to close a dozen underperforming stores from CNBC.

Costco Wholesale Corporation (NASDAQ:COST)

Costco Wholesale Corporation (NASDAQ:COST) is a low-cost retail chain which relies heavily on subscription fee. However, Costco customers are loyal. The company claims to have a 90% renewal rate. Costco is also spending on its digital platform to increase online sales. Online revenue accounts for about 4% of the company’s total sales. But analysts think that Costco Wholesale Corporation (NASDAQ:COST) will not be able to beat the competitive pricing of Amazon, especially after Amazon’s acquisition of Whole Foods. Amazon has plans to drastically lower the prices of grocery items at Whole Foods. Costco’s revenue and margins will suffer if it has to gives more discounts to be competitive.

Costco Wholesale Corporation (NASDAQ:COST) demographics show that most of the customers are above the age of 65. Millennials and younger consumers do not prefer to shop at Costco. This will take a toll on Costco’s growth plans in the future.

Analyst also believe that Costco Wholesale Corporation (NASDAQ:COST) core business model is antithetical to ecommerce. Costco provides convenience to those customers who prefer to pay one-time fee and enjoy discounts on bulk purchases. But most of the customers do not prefer to order items in bulk online.

In my opinion Target is the winner here. The stock has strong short-term and long-term growth catalysts. Therefore, you should look to buy Target stock before Q3 earnings and holiday season.