Buying TGT call contracts.

Retail stocks have been hit hard this summer. Major retailers like Target Corp. (TGT) — along with Wal-Mart and other blue-chip names — have struggled to find the right inventory to match with customer demand.

Investors now appear to fully understand and embrace this risk. Any surprises are likely to be POSITIVE (now that investor expectations are extremely bearish).

Shares of TGT currently trade for just 13.5 times next year’s expected profits. And the company pays a 2.7% dividend yield.

The attractive valuation and dividend yield should attract investors even in this challenging economic environment. And any positive guidance heading into the holiday buying season could send shares sharply higher.