The TJX Companies: Shopping for growth and value

This leading retailer passes a screen based on time-test value and growth strategy.

By TheStockAdvisors Apr 9, 2012 9:56AM
By John Reese, Validea

The TJX Companies (TJX) is a recent newcomer to the Validea Hot List. It has increased earnings per share in each year of the past decade, one of the reasons that it impresses my Warren Buffett-based model. It also scores highly on my Peter Lynch-based model.

In addition, the stock scores a 100% rating from my James O'Shaughnessy-based model, which is discussed below.

As the parent of Marshalls, T.J. Maxx, and HomeGoods, TJX offers brand-named clothing and merchandise at discount prices, making it attractive when times are good or bad. The $29 billion market cap company has taken in about $23 billion in sales in the past year.

TJX's ability to succeed in a variety of economic climates is clear by looking at its earnings history.

The first requirement of the Cornerstone Growth Strategy -- our model based on James O'Shaughnessy -- is that the company has a market capitalization of at least $150 million.

This will screen out the companies that are too illiquid for most investors, but still include a small growth company. TJX, with a market cap of $28,806 million, passes this criterion.

The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period.

TJX, whose annual earnings per share before extraordinary items for the last five years (from earliest to the most recent fiscal year) were 0.84, 1.04, 1.42, 1.65 and 1.93, passes this test.

The price-to-sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. TJX's price-to-sales ratio of 1.24, based on trailing 12 month sales, passes this criterion.

The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion.

This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. TJX, whose relative strength is 94, is in the top 50 and would pass this last criterion.

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