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Selling One Of My Favorite Businesses: A Fond Farewell To TJX Companies

Mar. 04, 2021 6:47 AM ETThe TJX Companies, Inc. (TJX)34 Comments
Kevin Mackie profile picture
Kevin Mackie


  • DCF analysis indicates that all future value to be derived from TJX companies is currently reflected in the share price. Selling to deploy the cash into better opportunities makes sense.
  • I am not a stock collector. I try not to get married to any of my positions. TJX has served its purpose in my portfolio.
  • Discounted cash flows analysis is the superior valuation methodology, as others inherently involve anticipation of market sentiment.

"Don't get married to a stock."

From what I could find online, this bit of investment advice can't be traced back to any one individual. Yet it is espoused by many, and remains one of the key tenets to my investment philosophy.

What does it look like to be "married" to an investment? Among other things, evidence of the love affair includes:

- Refusing to sell in spite of compelling reasons to do so

- Being willing to add to the position regardless of valuation

- Ad hominem attacks leveled at anyone who is bearish

- Ignoring data that indicate weaknesses in the company, and glorifying even mild positives. Confirmation bias.

This list is not intended to be all inclusive, but I imagine those of us who regularly peruse the comments section on Seeking Alpha articles see these things on full display on a regular basis.

Even though I try to adhere to the principle of not getting married to my stocks, I am not perfect. I have held on to my Carter's (CRI) position for probably far too long. I always seem to find a reason to hang on to see if my investment thesis plays out (currently I am waiting to see if a miniature baby boom results from the COVID-19 related lockdowns). I have held CRI for almost four years now with little to show for it.

With all that as a backdrop, the intent with this article is to explain why I have decided to sell my position in The TJX Companies (NYSE:TJX) even though I really love the company. They are well run and have a sound business model. Nonetheless, I believe that all future value to be extracted from the company is currently reflected in the share price. I am resisting emotional attachment, and plan on cashing in.

This article was written by

Kevin Mackie profile picture
Value strategies resonate with me, and I don't relegate myself to any sector or industry. You could say I am an equal opportunity investor: if a company meets my investment criteria, I will buy. Big picture, I look for three main things in a stock before I consider it for investment: Does the company have a product or service that will be in demand in the future? Does the company have a demonstrated history of success and are they on solid financial footing today (i.e., a manageable debt load and strong cash flow generation)? Can I purchase their stock for a reasonable price? If I can verify each of these things, I then look at how that company deploys their free cash flow to enrich their shareholders. Capital allocation is key. Money needs to be spent on the right thing at the right time, meaning that debt reduction should be prioritized over a dividend in most instances. Annual reports are also important to find any red flags or factors that strengthen the case for investment. That is the skeleton of my process, and it has served me well thus far. I appreciate engaging in intelligent dialogue with the SA community and look forward to learning with other users.

Analyst’s Disclosure: I am/we are long TJX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (34)

TJX has generated outstanding long-term returns and has done so since at least the 1960s. The company is doing something right so I would never bet against it. Perhaps if you are just a speculator it makes sense to try to move in and out of stocks while timing the market. But I think that one could do quite well by simply buying TJX, ROST, and BURL and then holding and reinvesting all dividends for the next 20 years
Siyu LI profile picture
most numbers used in the model are fairly reasonable (even somewhat aggressive, e.g. 7.4% growth, as you reasoned), except the most important one - discount rate at 10%.

in today's env, if there is a no-risk 10% offer, I would sell 50-75% of my equity investment to take that offer. if you tweak that number down 1-2 notch, you will then get a quite different valuation.

Yet overall I agree as a category leader, TJX is more than fairly valued.
p.s. i am chewing on selling TJX for (undecided, considering WMT).
Kevin Mackie profile picture
@Siyu LI I set my required rate of returns at levels that completely disregard prevailing interest rates. I don't care what the treasury yield is. 12% is my actual required rate of return. That is the number I need to achieve my financial plan, and my financial plan doesn't change based on the whims of bond buyers/sellers. I also find that 12% discount rates builds in a huge margin of safety in case any of my other inputs are wrong. There have been plenty of investment opportunities that pass that hurdle, and I make good money on them.
Siyu LI profile picture
@Kevin Mackie

Good for you, and it is true whatever formula work for you is what matters.
Having said that, a target RoR set in isolation, in general, doesn't make good sense. For example, 10-12% RoR would be a value destoryer if you hold Argentina peso-based assets in the last 3Y. The example might be extreme, but just to underscore the arguments that a meaningful target return shall often carry macro env awareness/appropriate benchmarking.
Kevin Mackie profile picture
@Siyu LI Good points. Thank you for the feedback.
I agree at TJX is not cheap at this level, but so as the overall market. What to buy after selling it with Uncle Sam taking a cut of my long term capital gain?
Valuation Focus profile picture
Well-reasoned analysis; thanks much for sharing your work with us. Solid company? Yes. Good investment at the current price? Not likely.
Every time I have go in TJ Maxx - store is packed. I expect it to go to 75 by the Summer.
@Jmzol2067 Follow my lovely wife and you will back up the truck. Not just TJX, but also Marshall's and Home Goods. She knows where every one is at in three states!
Rob G. in Vegas profile picture
TJX is one of those stocks that if you buy it right (like you did - TWICE!) it can be a wonderful performer. But paying top dollar for it now is a stretch. Not much margin of safety.
TJX has a long history of buying back stock in a disciplined manner, about 4% net per year of the outstanding shares. Is the ongoing shrinkage of the shares outstanding factored in to your analysis?
Kevin Mackie profile picture
@Ultrabase Actually, it is factored in. I disagree with TJX typical share re-purchases. They buy back stock on a regular basis regardless of where their stock is trading. That is a terrible capital allocation decision. Would you buy TJX stock at any price? I wouldn't. So why would I ever approve of management doing that, with shareholders capital no-less? Buying back stock all the time with zero regard for valuation is not disciplined at all. Careless actually. I would much rather they sock away cash into government securities or super high grade corporate bonds and then go on an absolute buying bonanza on the occasional instance where the stock collapses (like happened last March). That would be WAY more prudent. So I suppose their repurchase behavior strengthens my sell thesis.
@Kevin Mackie Actually, buying back shares does work, if your return on equity is high enough, which TJX's is. As a shareholder, I would never approve of them buying government securities, as you suggested, when long-term Treasuries are yielding only 1.6%. I would much rather have them buy back stock to shrink the equity base, resulting in ever-higher returns on equity.
Kevin Mackie profile picture
@Ultrabase I never said that buying back shares doesn't work. It does. That doesn't mean it is always the best use of cash. Capital allocation is the name of the game. Imagine how high their return on equity would be if they were more opportunisic about share repurchases and retired shares at low prices? Every dollar could go twice as far if they exercised some prudence about when to buy back shares. Again, I pose the question: would you pay any price for TJX shares? Or are you careful about valuation? Wouldn't you want management to do the same? Look at a chart of TJX P/E ratio over the past ten years. There were PLENTY of opportunities to gorge on share repurchases at great prices.
tjx is not worth at $72 more like $40
vanthaman profile picture
@Tony215 ok what do you do if its spring time and you just got a bonus check from the government...you go to tj maxx and get a new top...BUY
Bikeboatski profile picture
@vanthaman That's what I'm wondering....maybe not so much at the present valuation, but at least following the company, maybe keeping a small holding.
Kevin Mackie profile picture
@vanthaman as far as investment theses go..... that’s pretty weak
Where you saw any value in CRI is a mystery. And, 3 years holding TJX-well I looked at 2004-2008 where not much of anything happened, then it exploded. I would suggest maybe selling half of the TJX, get your capital back, ride the rest for a few more years, these are extremely savvy retailers, both ROST and TJX.
Kevin Mackie profile picture
@16578342 CRI has a virtual monopoly on childrens apparel. That is the value I see. The big headwind though is declining birth rates. Has been for years.
I sold out of my TJX position a few weeks ago after reaching the same conclusion. I love the company, and I certainly may come to regret my decision, but my reasoning wasn't flawed I don't think. The valuation has gotten ahead of itself, especially considering the headwinds likely to be faced over the next several years.

Again, great company, and I wouldn't fault anyone for hanging on to it, but I felt I had better opportunities elsewhere. TJX treated me well for the 4 years I had it though.
damcooldav3 profile picture
@Chalmus0 what headwinds? Everyone woman in my family goes to TJ to get out of the house. It’s like a new branded slogan, like going on a Target run. They go to TJ to explore and feed their shopping hunger. Find a dip in TJ and buy and keep buying in dips. This company is only going in one direction over the long term and is very safe.
@david.marple If you don't think that physical retail has headwinds, I'm not sure what to say to you to be honest.

TJX could very well benefit from a lot of those headwinds, as other stores going out of business provides TJX with cheap inventory, less competition, etc. But, there are still challenges out there for all physical retail, and I'm not sure how it will affect TJX for sure.

And if you want anecdotal evidence, I (45 years old) haven't been in a physical retail store outside of home depot/walmart/convenience/liquor stores in 20-25 years. My middle school and high school kids have never been in a mall or an apparel store. My wife and my ex-wife haven't been to one in as long as I have, and I don't know any friends that have either. And I live in Chicago, so it isn't like I don't have them available to me.
damcooldav3 profile picture
@Chalmus0 I agree with you that physical retail is limited if you’re not in the right business. It is human nature for “most” to interact with people and “do something” other than be cooped up at home. Tjx is a store that people explore to find things, not to set out to buy a plant or faucet or something specific so it’s a type of business model that is different from others. You not setting foot in a store for 20 years is definitely an anomaly, and being in Chicago I don’t blame you for not wanting to leave your home, but that is not most people. If you haven’t noticed, people are out, they want to be out, we tried the lockdown and people don’t want to be at home 24/7. It was nice for awhile, but I find ways to get out for my mental health when I can.
Psycho Analyst profile picture
I can see the validity of arguments for both holding and selling TJX. It's current valuation is silly, but some years ago when I was using valuation to both buy and sell stocks I sold several when they became what looked like very overvalued that went on to do very well. So now I am not using short term valuation projections as a selling criterion.

The point you make about the impact of other retailers going out of business is why I think the future might be brighter than currently predicted. Their "new store every week" model is why they have survived when most other retailers are failing.

Online mail order is raising its prices as it gains more market share and will continue to do so. There is so much crap clothing sold online, too, that doesn't live up to the photo and description. Finally, the current way many women shop, where they order several sizes and models to try on and then send back the ones that don't fit is not sustainable. All this will give TJX a price advantage and the advantage of letting shoppers see and feel what they are buying and make sure it fits.
Psycho Analyst profile picture
To clarify, I don't mean that they open a new store every week. Their advertising slogan means that the existing store merchandise is new every week which encourages shoppers to keep coming back. In contrast, most other department stores stock one set of mechandise for each season and you only shop once a season to see what's new.
damcooldav3 profile picture
@Psycho Analyst I agree that P/E isn’t the only thing to consider here. I used to do that, sell when P/E got too high. I’m learning that the stock market is almost all momentum driven. I’ve stopped being scared of buying high multiples and focused on brands, moats, momentum, things that will last. TJ is a company that will last because it’s built a brand in of itself and it’s created an adventure for every customer that walks thru the doors. You never know what cool new apparel or home item you’ll find when you go(to your point on changing merchandise).
Buyandhold 2012 profile picture
The average annual return of TJX since 8/1/95 with dividend reinvestment was 22.58%, turning a $10,000 investment into $1,836,651.

TJX is NEVER a sell.

At this time TJX is a hold.
Kevin Mackie profile picture
@Buyandhold 2012 With all due respect, you think all stocks are a NEVER SELL. What makes TJX stand out? I also think you put an over-emphasis on past returns. While what has happened historically can inform ones analysis, emphasizing it is faulty, in my opinion. Size is the enemy to compounding. For TJX to grow for the next 15 years at the same rate they did since 1995 (when they only had 1,166 stores vs. the 4,500 now) or even a fraction there-of would be miraculous.
GE Smith profile picture
I am a long time (10yrs) holder of TJX and agree with you. From my vantage point, the role I wanted it to play in my portfolio was growth, both in value and dividend. It has performed both well over the last decade and I believe will transition now to a slower growth/larger dividend play. I had already downsized my position in the last few months .
Edward J. Roche profile picture
@GE Smith i see no reason for slower growth.
Edward J. Roche profile picture
I am not selling any TJX shares, this is a rare retailer with a strong concept that continues to have strong consumer report. Valuation is not excessive.
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