If a market crash comes, what’s your strategy?
If you’re a long-term investor, a market crash isn’t likely to affect your investments. Market crashes take place more frequently than you might think, with a large correction historically taking place about once a decade. The market always eventually rebounds, however, and becomes stronger after each crash, so it’s important not to panic sell when one occurs.
To fortify your holdings, you should consider diversifying your portfolio by adding stocks that can perform well in any type of market. If I had to choose one unstoppable stock that has the potential to do well even during a market crash, I would buy shares of Target (NYSE:TGT).
Is showtime over for Target?
Target posted phenomenal performance during the pandemic, outpacing the growth from competing retail chains like Walmart (NYSE:WMT) and Costco (NASDAQ:COST). Fiscal 2020 comps generated 19% growth year over year, driven in part by a ramp-up of same-day services, which saw a 235% increase in use.
It may be challenging to match or exceed that kind of growth in 2021. But Target is well-positioned to maintain some level of growth year in and year out. There are two distinct differences between Target and its competitors, and they may be the key to the company’s success.
Target has an agile business
The first of these differences, or competitive advantages, is Target’s well-rounded business model, which comprises Super-sized stores, small-format stores, and omnichannel options. A Super store is around 130,000 square feet, and the smaller footprint stores are about one-third of that size, making them ideal for urban penetration where a large store isn’t practical.
Target has opened 140 of these stores, with some as small as 12,000 square feet. Each store offers a tailored product line that fits the needs of its community, such as its 30 small-format stores near college campuses that offer a selection of products geared toward college students. These stores also serve as shipping hubs for the surrounding region and make delivery cheaper and faster.
The retailer has 46 stores in the works this year, around 30 of which are small-store format, including eight in densely populated Manhattan. Management said that it would open 30 to 40 small-format stores annually, giving it a nice growth runway.
Target acquired same-day delivery company Shipt in 2017, which has become one of its most important segments. Drive-up services had the highest growth during the pandemic, increasing 500% in the fiscal fourth quarter, which ended Jan. 30. This works together with the growth of small stores and the company’s store-as-a-shipping hub model, and it’s perhaps Target’s most attractive feature, as well as the key to future growth. This, combined with the company’s discount pricing, is also the reason customers will continue to shop there in any environment, market crash or not.
Target is expanding its exclusive brands
The other competitive advantage is Target’s owned brands. Target owns 48 exclusive brands, 10 of which generated at least $1 billion in 2020 sales, and four of which generated at least $2 billion. Altogether, they represent a third of total sales, which is significant. They also tangibly contribute to the bottom line, since they’re manufactured by the company, and they represent more than a third of gross profit.
These brands, which are usually cheaper versions of similar competitor brands, are another way Target keeps customers coming.
Depending on how bad the market crash is, even reliable stocks might lose some value along with the broader market. Target’s stock price fell about 23% when the market crashed last March, but it quickly recovered, ending the year with a 35.6% gain. The price is up about 16.9% so far in 2021.
Buy some shares of Target to benefit from its resilience and add stability to your portfolio.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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