Tuesday, February 14, 2012

TJX: Bargain clothing, bargain stock

TJX Companies Inc. (TJX) is T.J. Maxx and Marshall's at your local shopping mall. Also HomeGoods and A.J. Wright. THeadquartered in Framingham, Massachussetts, TJX Companies does business in Canada and Europe as well as the United States.

If you're looking for clothes and wanting to save a buck (and who isn't these days?), TJX's stores are the place to go.

Arguably, it is hard times that has kept TJX's stock price rising steadily, from $19.78 since August 2010, in a way that the company's store prices never would.

In fact, looking very long term, the stock began rising from 70 cents in May 1995, and has continued an amazing uptrend interrupted by just two major corrections and two minor ones.

When I look at the chart, I'm troubled by the volume, which shows declining peaks since November on the daily chart and since April 2010 on the weekly chart.

At a micro level, the stock had a five-day correction in mid-January, bottoming at $32.50, and then rose with no correction lasting more than two days to a high of $34.94 on Feb. 8. Since then the price has dropped to lower highs and has traded within a range for four days.

The TJX chart is similar to many that I'm seeing as I screen: A steady rise since last year but faltering since last week.

I could argue that with the economy recovering, people will be moving to more upscale stores for their clothing needs. But I don't think the economic recovery will be that swift. I'm betting that the habit of thrift will remain long after better times return.

The TJX Companies' story suggests to me that it has reasonably sustainable market.

TJX had the best chart of 16 selected at random from 675 large-cap stocks. APC was the runner up. APH and RL completed the final four.

The analysts' consensus regards TJX as a buy, and no wonder, with return on equity of 43% and long-term debt amounting to 25% of equity, which is low for the department- and discount-store industry.

Institutions own 87% of the stock, and the price is only a little above parity with sales. It takes just $1.14 in shares to control a dollar in sales.

TJX is liquid, with 3.9 million shares traded daily on average. It has an adequate inventory of options with three- and four-figure open interest for all but the outlying strikes, and reasonable bid/ask spreads.

Earnings are due out on Feb. 22. The stock goes ex-dividend for the next quarterly payout, worth 1.1% a year, sometime in May.

Implied volatility is on the low side, at 27.4%. but there is a huge anomaly on the chart. Implied volatility stood at 25% on Feb. 3, spiked up to 67% on the next trading day, Feb. 6, dropped to 26% on Feb. 7, and spiked again to 59% on Feb. 8 before dropping back to 28% on Feb. 9.

I don't understand those spikes. They aren't reflected in the price. It could be a rogue computer. It could be something underlying. I don't get it.

Decision for my account: The unexplained implied volatility spikes are a deal killer. I'm passing on TJX. The declining volume also casts doubt on a further price rise. Even without those factors, I wouldn't open a position this close to earnings.

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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