We recently published a list of the Analyst Recommends 10 Best Stocks to Diversify Your Portfolio Away from Mega-Cap Tech and AI Stocks. Since TJX Companies Inc (NYSE:TJX) ranks 6th on the list, it deserves a deeper look.
Venu Krishna, Head of U.S. Equity Strategy & Global Equity Linked Strategies at Barclays, recently shared a basket of stocks he recommends offsetting the risks that come from market concentration in big tech stocks. In an interview with CNBC, Krishna emphasized that he remains inclined towards big tech stocks, but the important question he addressed is which stocks offer more value outside of the tech sector in the long term.
Krishna’s methodology to find some of the best stocks outside of the tech sector is simple: find out at what “core fundamental” metrics big tech stocks are “excelling” at and then “try to come close to that and create a portfolio which can give us that kind of exposure.” Through this methodology, Krishna says, he came up with a well-diversified portfolio of stocks that could act as a “hedge” against market concertation in big tech.
Krishna said he applied “liquidity filters” on the whole market to remove a “bunch of companies” and narrow down to stocks with strong growth and FCF multiples.
Despite him pointing out the concentration of gains problem, Venu Krishna believes the rise of big tech stocks is a “healthy trend” and some of the gains are now bifurcating to other sectors, too.
However Krishna said that over the past 18 months his portfolio of stocks has lagged behind the Big Tech, but outperformed equal-weighted S&P 500 and market cap-weighted S&P 500.
For this article, we took a look at Krishna’s latest basket of stocks to offset concentration in big tech risks and picked 10 stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A busy retail store floor with customers trying on apparel and browsing the products.
TJX Companies Inc (NYSE:TJX)
Number of Hedge Fund Investors: 63
Barclays believes TJX Companies Inc (NYSE:TJX) is one of the stocks that can be a good choice for investors looking to diversify their portfolios and hedge risks in a concentrated market. In May, TJX Companies Inc (NYSE:TJX) posted strong fiscal Q1’2025 results that show TJX is benefitting from the current inflationary environment. TJX Companies Inc (NYSE:TJX) also raised the full-year EPS guidance to $4.03 to $4.09 vs. the prior guide of $3.94 to $4.02. The company expects comp store sales to grow by 2 to 3% and pre-tax profit margins of 11 to 11.1% (vs. the prior guide of 10.9% to 11%).
TJX Companies Inc (NYSE:TJX) continues to shine despite the rising inflation as analysts believe the off-price retailer can survive (and even thrive) because consumers prefer discounted stores when times are tough. During the first quarter, TJX Companies Inc’s (NYSE:TJX) HomeGoods business saw comparable-store sales jump 4%. Overall, TJX’s comp sales jumped 3% in the first quarter, coming in at the higher end of the management guidance. Analyst expects fiscal Q2 to be better than the previous quarter as traffic is estimated to increase amid summer.
Wall Street estimates TJX Companies Inc (NYSE:TJX) earnings to grow 10% in the next year while revenue growth is expected at 5.5%. The stock is trading at 24 times its forward earnings, which isn’t outlandishly high given the stock’s long-term secular growth catalysts.
Madison Investments U.S. Equity Strategy stated the following regarding The TJX Companies, Inc. (NYSE:TJX) in its fourth quarter 2023 investor letter:
“Whether it’s performance by market capitalization, sectors, or any other factor, stock markets are intrinsically cyclical. Some cycles are long-term, taking decades to unfold, and some are short-term, lasting months, weeks, or even days. Many are medium in length, lasting two, three, or several years. Most cycles occur because a trend often creates the seeds of its own reversal. We at Madison Investments are certain that market cycles will occur, but it doesn’t mean we can predict their timing or magnitude. We don’t think we can. This is perhaps a major difference between us and many other investors. Most investors believe it’s their job to time market cycles despite overwhelming evidence that it’s nearly impossible to do so with enough accuracy to make such an effort profitable over long periods. We avoid making calls about market cycles and spend zero minutes thinking about them, not because we don’t think they can be important, but because we think they’re inherently unpredictable in duration.
This mentality of our team is generally true for other kinds of cycles, such as macroeconomic, industry, or company-specific, but is a bit more nuanced for those. We make no explicit prediction about cycles on which we base a buy or sell decision. Still, we are acutely aware of the various cyclical forces at work, and depending on whether we think we have the ability to assess the length or intensity of such, we may incorporate them to various degrees.
Let’s use a few examples to illustrate our point. We’ve been invested in off-price retailer The TJX Companies, Inc. (NYSE:TJX) 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…” (Click here to read the full text)
Overall, TJX Companies Inc (NYSE:TJX) ranks 6th on Insider Monkey’s list titled Analyst Recommends 10 Best Stocks to Diversify Your Portfolio Away from Mega-Cap Tech and AI Stocks. While we acknowledge the potential of TJX Companies Inc (NYSE:TJX), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TJX Companies Inc (NYSE:TJX) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
