The quietly winning stock Jim Cramer says is on the verge of a big upward move

CNBC Finance

5 min read

TJX Companies is far from the most talked-about stock in the market, but its steady performance in recent years has made it a bulwark in our portfolio. And Jim Cramer doesn't see that changing anytime soon. Quite the opposite. He argues that TJX shares could be primed for additional gains. "I'm looking at a discount retailer that is not nearly as good as TJX â Ross Stores â that did a good number," Jim said on Wednesday's Morning Meeting. "It makes me feel, you know what, maybe TJX can start its next climb." California-based Ross Stores, which operates the Ross Dress for Less and DD's Discount chains, delivered better-than-expected quarterly results on Tuesday night, sending shares up 7% in Wednesday's session. Same-store sales in the three months ended Jan. 31 rose 9%, well ahead of the 5.1% FactSet consensus. Better yet, its guidance for the current quarter called for same-store sales growth between 7% to 8%, also trouncing the consensus of 3.9%. Ross is considerably smaller than Massachusetts-based TJX and only has stores in the United States, totaling almost 2,300 locations. Ross's $6.64 billion in revenue in the January quarter is a little over a third of TJX's $17.74 billion. About three-quarters of TJX's revenue is domestic, with operations across the T.J. Maxx, Marshalls, HomeGoods, Homesense, and Sierra chains. Its international business â primarily in Canada, Europe, and Australia â includes additional store brands. TJX has over 5,200 locations worldwide. Despite these differences, the companies' shared reliance on the off-price retail model is what matters most to us. The results at Ross Stores reinforce that shoppers are flocking to off-price chains because those chains offer the best bargains. At a time when sticker shock is a frequent occurrence, who doesn't love a bargain? TJX delivered a knockout quarter of its own last week, another proof point. TJX 1Y mountain TJX's stock performance over the past 12 months. Shares of TJX have more than doubled over the past three years, easily outpacing the S & P 500's nearly 70% advance and crushing the State Street S & P Retail ETF, a basket of retail stocks, which is up about 28.5%. For that matter, TJX outperformed Ross Stores, which was up 88%, and Burlington, up 39%. If you look at our portfolio winners over the past 12 months, the biggest gainers are linked to powerful, all-consuming themes like the artificial intelligence buildout ( Corning , GE Vernova , Broadcom , Nvidia ). There are also companies cleaning up their own acts, like Boeing under a new CEO and DuPont with its breakup plan. Goldman Sachs is riding a well-documented wave of M & A activity. But TJX also makes that list, with a roughly 30% gain over the past year. At $161 and change on Wednesday, shares were less than a dollar away from their all-time closing high set on Feb. 27. To be sure, a critical debate among investors about TJX stock centers on valuation. Shares are trading at roughly 31 times forward earnings estimates, according to FactSet, well above the S & P 500 's 21. Ross carries a forward P/E of 29. Burlington is at 26. Our view is that TJX's consistency and best-of-breed status justify the premium valuation. Analysts at Bernstein agree with that view, pointing out in a note to clients last week that "even just this year, tariffs have been fully mitigated" and that the company is making structural improvements to its profitability. In our minds, TJX is the best operator in this space, which is why we prefer its stock to that of Ross Stores and fellow rival Burlington Stores . TJX's scale gives it power in negotiating with vendors looking to offload merchandise. And when we look at its track record, TJX's buyers â more than 1,400 of them â are as skilled as any in the industry. "OurÂ buyersÂ areÂ mostÂ ofÂ theÂ timeÂ gettingÂ theÂ firstÂ callÂ onÂ excessÂ inventoriesÂ becauseÂ theÂ marketÂ likes to deal with our buyers," CEO Ernie Herrman said on last week's earnings call. Traditional retailers typically place their orders many months in advance, and demand can shift by the time products are planned to hit the stores. That imbalance between supply and demand creates an opportunity for off-price players to step in later in the cycle to pick up excess merchandise at discounts. Then, they can turn around and sell it at a lower price on their shelves and racks. TJX likes to maintain a gap between its retail price and what it's being sold for elsewhere. "We kind of use other retailers around us for out-of-the-door pricing, and our buyers work it backwards," Herrman explained on an earnings call last year. The more excess inventory in the system, the better it is for off-price buyers. Right now, the market is ripe, so much so that TJX is having to tap the brakes, according to Herrman. "We'reÂ havingÂ toÂ slowÂ theÂ buyersÂ downÂ toÂ aÂ largeÂ degreeÂ inÂ everyÂ divisionÂ thatÂ we'reÂ operatingÂ in.Â So,Â that's telling us something on availability," the CEO said last week. That's a good sign for the business â its investors, too. (Jim Cramer's Charitable Trust is long TJX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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The quietly winning stock Jim Cramer says is on the verge of a big upward move

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