Time to Ring the Register on TJX as Retail Stocks Get Rocked?
TJX Brands shareholders haven’t had a losing year since 2008. Is this where the streak ends?
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Retail stocks were rocked on Monday, just as many of the key names in this sector are preparing to report earnings. Is this a buyable pullback, or should investors lighten up on retail stocks?
First, let’s look at the retail sector as a whole. On the left, we see the S&P 500 reaching yet another all-time high. On the right is the State Street SPDR Retail ETF (XRT) , a bellwether for the retail industry, losing over 3.5% and falling below its 50-day moving average (blue).
It could be that retail stocks are more sensitive to consumer confidence, which recently reached a new low. Or, it could be that investors are selling their underperforming stocks in order to invest more capital into AI-related names.
A third possibility is that earnings in the retail sector aren’t going to meet expectations, and institutions are getting out ahead of that news. We’re now entering the retail portion of the earnings cycle.
TJX Brands
One of our favorite retail names has been TJX Brands (TJX) , parent company of T.J. Maxx, Marshalls and HomeGoods. TJX Brands has put together an amazing winning streak, as shareholders haven’t had a losing year since 2008.
No streak lasts forever. We are over one-third of the way through the trading year, with stocks at all-time highs in a bull market, and TJX Brands is down 4.2% year-to-date.
TJX Brands fell sharply on Monday, briefly falling below its 200-day moving average (red) for the first time this year. The retailer is scheduled to report earnings next week, on May 20.
I won’t automatically sell a stock when it breaks its 200-day moving average, but in this case, there are several additional factors working against TJX Brands:
- The market is trading at an all-time high
- The stock is in the retail sector, currently a weak sector
- TJX is consumer-driven, and consumer confidence is at all-time lows
- The entire retail sector is getting crushed just ahead of earnings
That last point might be telling. There’s a reason why institutional investors are referred to as "smart money." They may know something about the retail sector that isn’t apparent to the rest of us, at least not yet.
Business Model
One thing that sets TJX Brands apart from the competition is its business model. The company buys from over 17,000 vendors, focusing on canceled orders and overproduced items.
Not only does this model allow TJX to sell products at steep discounts, it creates an air of anticipation. Shoppers never know what they’ll find at a TJX store.
Bottom Line
TJX’s business model has allowed the company to thrive at a time when retail stores are fighting to survive. It’s still a good business model, but institutions are selling retail stocks with gusto, including TJX. The speed of the stock’s decline, in close proximity to its upcoming earnings report, means it's time to ring the register on TJX.
Related: AI Is Booming — But the Consumer Is Struggling
At the time of publication, Ponsi had no positions in any securities mentioned.
