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TJ Maxx Vs. Ross Stores

Macy's poor sales have brought down the entire retail market.

I investigate two of the retail stocks that are unlikely to be hurt by the declining middle class or increasing stinginess in the American consumer.

What I find are two different off-price retail stocks with the possibility of a pair trade.

Coincidentally, front-running the news that Macy's (NYSE:M) is tumbling due to poor sales, I released an article on Amazon (NASDAQ:AMZN) vs. eBay (NASDAQ:EBAY). Why "coincidentally?" Because both of these companies are clear alternatives to Macy's when it comes to finding apparel.

Despite their sacrifice of their ability to allow the customer to try before they buy, these companies are popular clothing stores, if you can call them that. Their main appeal, besides variety, is the prices. Most of the time, you can find the same item for a significant discount on Amazon or eBay (if you don't believe me, just check and look for the same item on Amazon or eBay).

Another relevant comparison on the back of the Macy's news is that of Ross Stores (NASDAQ:ROST) and TJX Companies (NYSE:TJX). Both are off-price retail stores that offer consumers the same type, quality and design of apparel you can find in Macy's, but at a 20% to 70% discount. Both these companies were hit by Macy's news - perhaps unfairly (I leave that up to you to decide).

This article is for investors who believe the pullback is an entry point into the off-price apparel market and are split between ROST and TJX.


Before the pullback, TJX was at an all-time high. Yet at the same time, the company announced a $2B buyback program. This is worrisome because a buyback program should only be initiated when the company believes the stock to be undervalued.

Curious, I ran my discounted cash flow model on the stock to see where the intrinsic value stands in respect to the stock. I was surprised:

Perhaps I overestimated the growth rate in my model. But I doubt it, as this model converges well with other stocks. Nevertheless, we can...