The TJX Companies, Inc. (TJX), Ross Stores, Inc. (ROST): Buy The Specialty Retailers And Not The Department Stores

With the all the troubles that the big box department stores like J.C. Penney Company, Inc. (NYSE:JCP) and Sears Holdings Corp (NASDAQ:SHLD) have had over the years, investors are better off focusing on the smaller specialty retailers. These retailers are focused and don’t need new management to implement possible turnarounds. I’m a fan of companies that identify a niche and look to exploit that niche. To me this is a better strategy than the big department stores that try and be all things for all people. We all know how that’s working out over at J.C. Penney Company, Inc. (NYSE:JCP). These are my four favorite specialty retailing stocks.

The TJX Companies, Inc. (NYSE:TJX) specializes in off-price apparel and home fashions. The company is comprised of the following stores in each market:

United States

• 1,036 T.J. Maxx
• 904 Marshalls
• 415 HomeGoods
• 4 Sierra Trading Post

Canada

• 222 Winners
• 88 HomeSense
• 14 Marshalls

Europe

• 343 T.K. Maxx
• 24 HomeSense

What I really like about The TJX Companies, Inc. (NYSE:TJX) is that they benefited from the economic downturn over the last few years. Many consumers were forced to budget themselves, and that forced them into The TJX Companies, Inc. (NYSE:TJX)’s stores. What many customers found was quality clothing at great prices. Even as the economy is recovering, many keep coming back because of the overall quality of the merchandise and the great prices.

The company has tremendous prospects for continued growth. In the U.S. and Europe, the company plans on opening 1,000 more stores in each region. In Europe that would triple the store count, and the U.S. store count would increase by almost 45%.

Management has done a great job operating the company, and the stock price is evidence of that. The share price just hit a new 52-week high, and long-term EPS growth is forecast at 11%. The company’s current operating margin is 12%.

The TJX Companies, Inc. (NYSE:TJX) closest competitor in the same business is Ross Stores, Inc. (NASDAQ:ROST). Ross Stores, Inc. (NASDAQ:ROST) also operates off-price retail apparel and home fashion stores. The company has 1,112 Ross Stores, Inc. (NASDAQ:ROST) stores and 115 dds DISCOUNTS stores.

Ross Stores, Inc. (NASDAQ:ROST) continues to benefit from consumer’s frugal behavior. Last month the company reported that same store sales were up 7%, which beat forecasts. Ross Stores, Inc. (NASDAQ:ROST) also forecast first quarter earnings to come in at $1.06 to $1.07 per share compared to prior guidance of $1.00 to $1.04 a share. Ross Stores, Inc. (NASDAQ:ROST) plans to add 500 more stores, increasing its store count by 50%. That’s really going to grow revenues for this company.