Investors Prospecting in Retail Can Win With Off Price Merchants

Cramer is far from a fan of the sector, especially in light of last week's disappointments, but likes TJX and Ross Stores.

Author:: Bob O'Brien
Publish date:: May 16, 2016 2:17 PM EDT

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Investors have every right to be dismayed with the state of the retail sector after last week's drubbing of the group following some disappointing earnings, but Jim Cramer believes that anybody who feels they still need exposure to the sector can find a safe harbor in off-price retailers such as TJX Cos. (TJX) - Get Report and Ross Stores (ROST) - Get Report .

"I'd position myself to be a buyer of both of those," Cramer, TheStreet's founder and co-manager of the Action Alerts Portfolio, said in an interview Monday.

Off-price retailers actually benefit from the woes of big department stores, he noted. "When department stores don't have the money to pay for goods, or they're stuck with goods, they sell to TJX and Ross," Cramer said.

Both companies are slated to release earnings this week. TJX kicks it off Tuesday. The retailer is expected to post 71 cents a share on the bottom line, and top line sales of $7.3 billion. Same stores sales are seen rising 1% to 3%, amid a string of consecutive positive sales comparisons by the retailer, so don't be surprised if TJX actually blows through forecasts for same store sales.

That's unlike the full priced department store group, which posted results last week that showed sales comparisons declined 4%, on average. Overall, Cramer isn't very constructive on the retail group - "I don't like retail," he said bluntly in the interview - but recognizes that some investors need to stay exposed to the segment. The challenge is to buy selective names that have characteristics - off-price merchandise, and a kind of treasure hunt feeling to the shopping experience - that can thrive in an environment in which consumers seem to be less excited about owning brands than they are about experiences.

Ross Stores, which reports its first quarter Thursday, is slated to put up 73 cents a share in profits on revenues of $3.1 billion.

TJX and Ross, Cramer said, "can come in underneath Amazon.com (AMZN) - Get Report " and have that "treasure hunt feel" to the shopping experience.