Taking a Foray into Off-Price Retailers

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Stock markets closed the week on a down note, with the Dow Jones falling 1.21%, the S&P 500 tumbling 1.21% and the NASDAQ dropping 1.30%. The MCSI Emerging Markets Index fell 2.25%.

Big gainers in your Bull Market Alert portfolio included United States Oil (USO), which climbed 7.51%, and Domino’s Pizza, Inc. (DPZ), which rose 3.34%.

This week’s Bull Market Alert recommendation takes us into the world of off-price retailer The TJX Companies, Inc. (TJX).

Off-price retailers sell their merchandise at a 20-80% discount compared to similar merchandise sold in department stores. And 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 The TJX Companies — 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, 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 (TJX) 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 rivals Ross Stores or Burlington Stores, The 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 hit a new 52-week high of $79.20 on March 31, a day 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.

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So buy The TJX Companies, Inc. (TJX) at market today, and place your stop at $69.50. If you want to play the options in the expectation of a bounce, I recommend the May $75 calls (TJX160520C00075000), which last sold at $3.10 and expire on May 20.

Portfolio Update

United States Oil (USO) climbed 7.51% over the past five-day trading week. Major global oil producers have been threatening cutbacks in oil supply over recent weeks — giving oil prices the boost they needed to get back to $40 per barrel. This caused USO to bounce upwards from its 50-day moving average (MA). Expect some moderate volatility at this price level as markets struggle to move upwards past this mental resistance point. USO is a BUY.

iShares MSCI Emerging Markets (EEM) dipped 2.25% lower last week. Emerging markets exchange-traded funds (ETFs) are beating European investment-themed funds so far in 2016. In addition, $5.6 billion moved into emerging market ETFs last month compared to a net loss for European equity ETFs. Which ETF took in the most new money last month? Why, EEM did with its $4.6 billion inflow. EEM is a BUY.

iShares MSCI Ireland Capped (EIRL) dipped 0.79%. EIRL traded sideways for a second week after breaking above the 200-day MA two weeks ago. I’m watching this trading action closely, as each week EIRL stays above this line, upwards pressure builds for extended gains. EIRL is a BUY.

Domino’s Pizza, Inc. (DPZ) had a great first week in your portfolio, rising 3.34% and hitting a new 52-week high. Because Domino’s does not want to be the retailer that gets between you buying pizza and the challenge that pushing buttons on your phone can present, the company is launching Zero Click Ordering. No kidding. Just open the Zero Click order app, wait through a ten-second countdown timer, and your favorite pre-configured pizza order is automatically fired off to your local Domino’s. DPZ will report earnings on April 28 before markets open. DPZ is well above its 50-day MA and is a BUY.

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