The economy is stuck in a slow growth mode, but the stock
market has been doing well. Companies are busying making money,
and they are buying back stock while enjoying the benefits of
cheap money. The Federal Reserve is watching employment data,
interest rates and inflation very carefully waiting for signs of
a solid turnaround. Thus far the recovery would best be describe
as low; but this also keeps cheap money going into businesses.
Companies used a lot of that money to buy back shares which has
raised stock prices. One might argue we remain in a sweet spot
where businesses enjoy profits and cheap money but we don't have
enough growth to cause inflation or interest rate worries to end
With employment soft, retail sales have also been soft. If people
don't have jobs and money to spend, it becomes harder to go and
buy new things. Not all retailers suffer the same under
circumstances like this, some do better than others.
When times get tough, some retailers close underperforming
stores, cut inventories and staffing, and wait out the bad times.
They know that the situation will turn around. Many retailers are
used to doing this, running a break-even business through much of
the year, but finally pulling into the black with
after-Thanksgiving "Black Friday" sales and a healthy Christmas
Some retailers have done better in tough times, benefiting as
customers trade down and shop for bargains. Wal-mart, Dollar
Tree, and TJX Companies are good examples of stores that have
performed well when consumers were hunting for bargains.
TJX Cos. is the nation's largest off-price family apparel and
home-fashion retailer. It has about 3,000 stores under various
names, including TJ MAX, Marshall's and Home Goods. In FY2014 the
company had revenues of $27 billion up from $20 billion in 2010.
Earnings per share grew from $1.42 to $2.94 per share over this
time. Analysts expect sales to continue growing at 5% to 7% a
year for the next several years. The company plans to repurchase
about $1.6 billion of its own shares, which, for a company with a
market capitalization of $41 billion could lift the stock price
TJX plans to double the number of stores it has in the US and
also plans to expand in European market. The company's style of
waiting until other retailers have shopped and then buying
merchandise late in the cycle gives it a pricing advantage.
Regular customers learn to return often as new products can show
up in stores at any time.
The stock has risen from $20 to $60 over the last five years,
but has seen the price stuck in a range between $51 and $64 for
the last year. Given solid fundamentals, this is the type of
company one wants to have as part of their stock portfolio.
Take a look at the January 2015 $57.50 covered call on TJX.
With the stock trading at $59.40 the January $57.50 call could be
sold for $3.80 giving us a net debit of $55.60 for a new
position. This means the covered call has a 3.8% assigned return
rate over the next 150 days. Annualized (for comparison purposes
only) this a 9.2% return. The company has a dividend yield of
1.2% which can also add to the returns. Shareholders of the stock
could get two $0.175 dividends near September 20 and December