Investors diving for cover in the midst of the new year's market plunge can nevertheless take heart. These three defensive stock stalwarts may be world beaters in any financial climate for years to come.
Ross Stores (ROST) could head this small pack. Dollar Tree (DLTR) and TJX (TJX) are the other two potential investments. All three are the very definition of defensive stocks. They're businesses -- off-price home and apparel retailers -- that sell basic goods the typical consumer buys in good times and bad. And the companies churn out earnings at a dependable clip.
Yet their stock returns are anything but defensive. Ross, for starters, began rising before the Great Recession broke and climbed year in, year out through 2015 for a gain of over 600%. Dollar Tree and TJX also had spectacular triple-digit gains, while the S&P 500 (SPY) index was far from even doubling during that time.
To be sure, the risk of even a great retail stock story turning unprofitable is very real. An investor who bought Walmart (WMT) in 1999 and Target (TGT) in 2007 would be stuck with an (inflation-adjusted) loss for their perseverance. Target is a holding in the Action Alerts PLUS Charitable Trust Portfolio, which is managed by TheStreet's Jim Cramer. On Jan. 8, Cramer wrote, "we do view the continued slide in crude oil prices as a positive for Target as consumers continue to save at the gas pump; these savings haven't yet turned into spending, but it does provide a more favorable backdrop for retailers."
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It's hard to see an end for Ross. The company is aiming to double the number of stores it has to 2,500 from its current 1,242. At an opening rate planned for 70 a year, it will be nearly two decades before Ross reaches that goal. The company has an enviable track record of delivering excellent profits from its expansion.
Earnings per share at Ross have climbed at over 20% annually for the past 10 years; at Walmart, that rate was 7%. Moreover, Ross has been noted for its positive earnings surprises over the last two years. Not surprisingly, analysts overall rate it a buy, according to Zacks Investment Research.
Investors who insist on seeing some defensive credentials may not be disappointed either. Ross shares boast a current dividend yield of 0.9%, comparable to many one-year certificates of deposit
For some investors though, Dollar Tree may prove an even more attractive stock. Its shares over the same eight-plus year period increased much more -- a gain of over 800%.
Dollar Tree also gave its already significant growth prospects a huge shot in the arm last summer. It acquired Family Dollar, which had its own enviable track record before the acquisition. Analysts rate Dollar Tree a buy too.
Yet if investors are sold on Dollar Tree, they'll have to pay for it. Dollar Tree's price-to-earnings multiple is 62.1 -- nearly three times that of Ross, at 21.7. Nor does Dollar Tree pay a dividend.
TJX rounds out the trio as perhaps the most conventional of the three choices. It also rates a buy.
Retailer TJX is a well-known brand, operating stores TJ Maxx and Marshalls. Its market capitalization is more than twice that of the other two companies. It has a dividend yield of 1.2% and a P/E of 21.0. Yet, for an established company, its shares have done extremely well, rising nearly 500% during the last eight years.