Investing in Walmart (WMT) and Target (TGT) ahead of the holidays won't be akin to buying yourself a lump of coal for your stocking. 

Or so says Bank of America retail analyst Robby Ohmes, who is bullish on both names in light of sharp pullbacks in the stock prices of late. 

Ohmes notes shares of Target and Walmart are down 13% and 8%, respectively, in the past month on fears of supply chain bottlenecks and elevated inflation. 

But the sell-off's now look overdone based on several factors. 

"Walmart and Target entered 3Q with strong inventory positions. Both retailers should benefit from more favorable port access, long-term container shipping agreements and chartered vessel capacity. Walmart and Target should gain share from smaller competitors this holiday that lack scale and face more shortages due to the challenging supply chain environment," explains Ohmes. 

The analyst adds both retailers should see less labor cost pressure as they cycle sizable wage inflation last year and their market share gains in food as further reasons to be upbeat. 

Shares of Walmart and Target rose slightly in Tuesday's session. Year-to-date Target's stock is up 30% while Walmart's is down 3% as the former has wowed Wall Street with its quarterly sales gains. 

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To be sure, the backdrop is set for a very solid holiday shopping season that could lift shares of big retailers like Walmart and Target. 

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Key drivers of consumer spending — wages and job growth — continue to head in the right direction as the economy tries to turn the corner from the pandemic. Meanwhile, the U.S. savings rate is hovering around 10% — giving many households ample room to spend on holiday gifts.

Holiday retail sales are forecast to rise 7% to 9% this year, according to Deloitte. E-commerce sales are projected to increase by 11% to 15% year-over-year. 

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“We anticipate strong consumer spending for the upcoming holiday season. As vaccination rates rise and consumers are more comfortable being outside of the home, we are likely to see increased spending on services, including restaurants and travel, while spending on goods will continue to hold steady. A steady decline in the savings rate to pre-pandemic levels will support consumer spending and keep retail sales elevated this season,” said Daniel Bachman, Deloitte’s U.S. economic forecaster.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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