Goldman Sachs’ Top Fund Manager Stock Picks: 25 Best Overweight Stocks

6. The TJX Companies, Inc. (NYSE:TJX)

Number of Hedge Fund Investors In Q2 2024: 56

Mutual Fund Overweight Percentage: 0.14%

The TJX Companies, Inc. (NYSE:TJX) is one of the biggest retailers in the world. The firm sells a variety of products such as apparel, food, and furniture. As a result, margins, volume, and pricing power are among the key drivers of its hypothesis. Since it’s an off price retailer, The TJX Companies, Inc. (NYSE:TJX) has seen sizeable catalysts over the past couple of years which have been plagued by inflation. Between 2021 and 2023, the retailer’s revenue has grown by 68%, or from $32 billion to $54 billion. However, current geopolitical tensions, potential strikes on the East Coast, and rising compensation costs could make the firm struggle with cost control and margins. The TJX Companies, Inc. (NYSE:TJX)’s forward price to earnings ratio is 27.86, which is lower than near peer firms like Walmart (32.68) and Costco (50.25). As a result, volume and comp growth might create tailwinds for the stock to help it catch up with the broader industry’s valuation. Some catalysts that might aid this include evaporating cost pressure and a strong holiday season.

While it was for Q4 2023, Madison Investment’s investor letter provides a great summary of The TJX Companies, Inc. (NYSE:TJX)’s share price performance and some of the drivers:

“We’ve been invested in off-price retailer TJX Companies for just under ten years, having invested in 2014 in our Large Cap strategy. TJX is one of the most recession-resistant companies we own due to its perennial value proposition to customers; customers always like to save money, especially when economic times get tough. As a result, the company has had an exceedingly steady revenue and earning profile over the past several decades.

But that doesn’t make it immune to other kinds of cycles. After our initial investment, the stock materially outperformed the S&P 500 for two years. Then, it materially underperformed for two years. Then, it materially outperformed again for two years. Then, once again, it materially underperformed for over two years before starting its current stretch of strong two-year outperformance. Despite these swings in relative performance, the investment has done rather well over the full term of our ownership, outperforming the index.

For some periods of underperformance, there seem to be fundamental explanations – the company made a few merchandising mistakes, and sales were weak, or there were expense pressures that crimped margins, for example. For the other periods of underperformance, there are no obvious reasons for underperformance. The stock likely just fell out of favor with investors for market cycle reasons or perhaps “got ahead of itself.” But the critical point is that we made little attempt to forecast these unforecastables, and held steady with our investment with infrequent trading. So far we have been rewarded.”