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TJX: Discount Gorilla
04/19/2016 8:00 am EST
Our latest new buy recommendation takes us into the world of off-price retailers that sell their merchandise at a discount compared to similar merchandise in department stores, suggests Nicholas Vardy, editor of Bull Market Alert.
While mainstream department stores have struggled during the past few years, off-price retailers have been going from strength to strength.
Here’s why I think TJX Companies (TJX) -- the largest off-price retailer in the United States -- is set to rise in the coming months.
First, TJX reported solid fiscal fourth-quarter 2016 results. Earnings of 99 cents per share surpassed the consensus estimate of 94 cents and net sales.
The results were supported by higher comps, rose 8% year over year to $9.0 billion, beating the consensus estimate of $8.7 billion.
The lean business model and low-cost structures of TJX Companies has helped it sustain higher operating margins than mainstream department stores. Higher inventory turnover also boosts margins.
Second, TJX Companies is the gorilla of the sector, operating 2,697 stores in the United States under the brand names T.J. Maxx, Marshalls, HomeGoods and Sierra Trading Post.
Unlike its rivals, TJX Companies also has a strong international presence, with 387 stores in Canada, 495 stores in Europe and 35 stores in Australia.
TJX Companies plans to add 195 new stores in the fiscal year 2016 -- 115 in the United States, 30 in Canada and 50 in Europe -- thus bringing the total count to 3,809 stores.
Third, TJX shares recently hit a new 52-week high after the company announced a 24% dividend hike, marking the 20th consecutive year of a quarterly dividend hike for the company.
Surprisingly, the stock has pulled back since then, and is now technically oversold. That makes current levels a strong point of entry. So buy The TJX Companies at market today, and place your stop at $69.50.
By Nicholas Vardy, Editor of Bull Market Alert
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