This holiday season, the retail industry is set to thrive, driven by AI-powered personalization, BOPIS (Buy Online Pick Up In Store), social commerce adoption by Gen Z, and rising BNPL usage. Likewise, strategic holiday exclusive discounts and a surge in email marketing are key strategies retailers are using to stay competitive.

Therefore, ahead of this holiday season, investors might consider buying strong retail stocks such as Target Corporation (TGT) and The Kroger Co. (KR) to secure solid gains.

The 2024 holiday season is poised for robust e-commerce growth, fueled by potential interest rate cuts that could boost consumer confidence. Retailers are gearing up to attract shoppers with attractive discounts, driving both profitability and engagement. According to Statista, holiday retail sales are projected to reach $960 billion in 2024, presenting a prime opportunity for the retail industry to thrive.

Furthermore, with the expansion of supermarkets, hypermarkets, and online stores, the retail sector is set to continue growing. Tourist shopping and seasonal events for Thanksgiving and Christmas drive demand for food, gifts, and unique products, particularly through personalized experiences. As a result, the retail industry is expected to reach $47.24 trillion by 2029, growing at a 7.6% CAGR.

Considering these conducive trends, let’s examine the fundamentals of the two Grocery/Big Box Retailers stock picks mentioned above, beginning with the second choice.

Stock #2: Target Corporation (TGT)

TGT operates as a general merchandise retailer in the United States. It offers apparel for women, men, boys, girls, toddlers, infants, and newborns, as well as jewellery, accessories, and shoes; beauty and personal care, baby gear, cleaning, paper products, and pet supplies.

On June 12, 2024, TGT announced a 1.8% increase in its quarterly dividend to $1.12 per share, payable on September 10, 2024. This marks the company's 228th consecutive dividend payment and is part of its 53rd consecutive year of annual dividend increases.

In terms of the trailing-12-month Return on Total Assets, TGT’s 8.01% is 86% higher than the 4.31% industry average. Its 33.97% trailing-12-month Return on Common Equity is 222.4% higher than the 10.54% industry average. Moreover, its 1.97x trailing-12-month asset turnover ratio is 128.3% higher than the industry average of 0.86x.

For the second quarter, which ended on August 3, 2024, TGT's total revenue rose 2.7% year-over-year to $25.45 billion, and its operating income stood at $1.64 billion, up 36.6% year-over-year. The company’s net earnings and adjusted EPS were $1.19 billion and $2.57, respectively, representing increases of 42.7% and 42.4% over the prior-year quarter.

For the quarter ending October 31, 2024, TGT’s EPS and revenue are expected to increase 9.1% and 2.1% year-over-year to $2.29 and $25.94 billion, respectively.  TGT surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, its stock has gained 21.3% to close the last trading session at $151.90.

TGT’s POWR Ratings reflect its strong fundamentals. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Value, Momentum, Sentiment, and Quality. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #11 out of 37 stocks. To see TGT’s ratings for Growth and Stability, click here.

Stock #1: The Kroger Co. (KR)

KR operates as a food and drug retailer in the United States. The company operates combination food and drug stores; multi-department stores; marketplace stores; and price-impact warehouses.

On September 4, 2024, KR announced the return of Private Selection's limited-edition Harvest Apple products starting September 8, 2024. This fall lineup includes new items like Spiced Apple Cider and Caramel Apple Popcorn, available exclusively in stores while supplies last.

On August 22, 2024, KR announced the launch of the Vanderpump Blooms x Bloom Haus floral collection, curated by Lisa Vanderpump, available exclusively in KR’s stores starting September 4, 2024. The collection features elegant bouquets and floral arrangements in custom vases, embodying Vanderpump's signature style.

KR’s 9.66% trailing-12-month Return on Total Capital is 39.8% higher than the 6.91% industry average. Its trailing-12-month asset turnover ratio of 2.95x is 242.8% higher than the 0.86x industry average. Similarly, the stock’s 18.32% trailing-12-month Return on Common Equity is 73.8% higher than the 10.54% industry average.

KR’s sales for the first quarter that ended May 25, 2024, increased marginally year-over-year to $45.27 billion. Likewise, its adjusted FIFO operating profit and adjusted EPS came in at $1.50 billion and $1.43, respectively. In addition, the company’s cash and cash equivalents stood at $345 million as of May 25, 2024, compared to 241 million as of May 20, 2023.

Analysts expect KR’s revenue for the quarter ended July 31, 2024, to increase marginally year-over-year to $34.11 billion. Its EPS for the quarter ending October 31, 2024, is expected to grow 3.5% year-over-year to $0.98. KR surpassed the consensus EPS estimate in each of the trailing four quarters. The stock has gained 19.9% over the past nine months to close the last trading session at $53.37.

It’s no surprise that KR has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

It has a B grade for Value, Sentiment, and Quality. It is ranked #8 in the Grocery/Big Box Retailers industry. Beyond what we have stated above, we also have given KR grades for Growth, Momentum, and Stability. Get all the KR ratings here.

What To Do Next?

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TGT shares were trading at $151.11 per share on Friday afternoon, down $0.79 (-0.52%). Year-to-date, TGT has gained 9.34%, versus a 14.45% rise in the benchmark S&P 500 index during the same period.

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.

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