There's a Lot to Like About TJX Companies

Since the terrorist attacks, a slew of retailers have issued earnings warnings as many economists have revised their growth projections downward for the coming quarters.

One company that has not been forced to warn is off-price retailer TJX Companies (TJX Quote), confirming what is essentially conventional wisdom: Discount-oriented retailers do better than others during an economic slowdown. After all, the company was able to increase same-store sales -- a key retailing metric measuring the activity in shops open at least a year -- by 4% in August, higher than analysts expected. The consumer economy, remember, was putting on the brakes long before Sept. 11.

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Meanwhile, TJX's share price has maintained its value since trading resumed after the attacks, which cannot be said for many in its sector.

While investors would be wise to proceed with caution in picking any retailer in this environment, TJX, which operates the TJ Maxx and Marshall's chains, deserves close attention. In addition to the obvious -- that its cheap goods will be attractive to consumers watching their wallets -- there are two other reasons investors should keep the company on their radar screen.

First, debt. One of the mantras of retail investing is to avoid highly leveraged retailers when the economy goes south -- one of the reasons investment managers and analysts have been steering investors away from the likes of debt-soaked Kmart(KM Quote) and J.C. Penney(JCP Quote). But TJX has little debt. At the end of the second quarter, the company had only $2.9 million in short-term debt on its balance sheet, down from over $297 million at the end of the prior year.

Then there is the valuation, which is reasonable. The company trades at around 14.6 times next year's earnings. Earnings, meanwhile, are expected to grow at about 15%, according to First Call/Thomson Financial, and could be higher should the economy rebound.

So, here's the story: You have a retailer with little debt that sells cheap goods at a time when recession looms, and whose stock trades at a slight discount to its projected growth rate. That's a scenario that deserves a look from investors.