The One Retail Stock Worth Buying

I was actually surprised when I found out which one retail stock performed best on my scans. Sure, I’ve been to their stores several times in the past year, but can they really be doing that much better than their brick-and-mortar retail peers?

Turns out they can! My top retail stock today is TJX Companies (TJX), the parent company of T.J. Maxx, HomeGoods and Marshalls.

The company currently has 3,800 stores in nine countries. TJX’s “off-price” formula is one of the few retail concepts that still seems to be able to lure shoppers into stores. Merchandise is refreshed daily, and prices are usually 20% to 60% lower than at regular stores. Management describes their shopping experience as a “treasure hunt.”

I do visit my local T.J. Maxx pretty often, but I was still skeptical that the concept is Amazon-proof. But the numbers tell the story! TJX’s revenues and EPS have grown steadily in each of the last five years. Same-store sales rose 3% last quarter, thanks to higher traffic. And analysts predict continued growth in both revenues and earnings going forward:

TJX doesn’t look bad technically either. Sure, the stock peaked a year ago, but the 13% pullback since then is still within normal correction territory, and is largely due to the larger retail selloff. (The Retail SPDR, XRT, has pulled back 14% over the same time period.) On a weekly chart, the correction looks pretty normal.

And management just raised their full-year guidance, which can be a good catalyst for gains in the stock.

Plus, TJX has a 20-year history of dividend growth, having increased their dividend every year since 1997. Today, TJX has a 1.8% yield, and a very reasonable 32% payout ratio.

In other words, the retail selloff has created a great opportunity for investors who like “treasure hunting” to pick up this good quality retail stock at a bargain price.

In Cabot Dividend Investor, we feature many high-quality dividend stocks.

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TJX Companies (TJX): A good long-term core holding

By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter

From Cabot Wealth Advisory 6/28/10 Sign up for free Cabot Wealth Advisory e-newsletter

One of the most attractive very high-quality companies in my database of 1000 stocks is TJX Companies. The company is well qualified to be included as a long-term core holding in your portfolio.

TJX Companies (TJX) is the largest U.S. retailer of discount apparel and home fashion goods with 2,700 stores in the U.S., Canada, Germany, Ireland and the United Kingdom. The company’s main chains are T.J. Maxx, Marshalls, Winners and HomeGoods.

Management believes the slow economic environment offers outstanding opportunities for growth. TJX opened more stores than originally planned in 2009 and renovated many of its existing stores. These moves attracted many new customers who were drawn to low prices and good-quality merchandise. We expect TJX to retain its newfound customers and expand its store base aggressively during the next couple of years.

Same store sales increased 4% in April and May 2010. TJX shares are undervalued at 12.9 times forward 12-month EPS. Sales and EPS will likely increase by a minimum of 8% and 10% respectively during the next 12 months and accelerate thereafter as new stores become more profitable.

TJX increased its dividend at the end of 2009 and has raised its dividend by 22% per year during the past 10 years. The dividend provides a 1.3% annual yield. The company has a strong balance sheet with a reasonable amount of debt and lots of cash. Sales, earnings and dividends have been growing steadily for the past 14 years. I recommend TJX as a buy now.

Editor’s Note: Cabot Benjamin Graham Value Letter, of which Roy is the editor, has more on TJX Companies (TJX), as well as dozens of other top-rated value stocks. Don’t miss out on those stocks and Roy’s latest recommendations. Get started today! Click here: Cabot Benjamin Graham Value Letter

Roy Ward
J. Royden Ward

Editor of Cabot Benjamin Graham Value Letter
A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the Value Letter.

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