TJX, Burlington, Ross Stores have ‘substantial’ upside this year

The off-price retailers are likely to expand market share in 2022, says BofA Securities’ Lorraine Hutchinson. Her top picks in this subsector are TJX Companies, Burlington, and Ross Stores.

Highlights from Hutchinson’s interview on CNBC’s ‘The Exchange’

Hutchinson sees a 30% upside at least in the three stocks this year. Making a bull case for the off-price retailers on CNBC’s “The Exchange”, she said:

We see pretty substantial, up to 50% upside in these three stocks that will make up for some of the lost multiple. They’re trading at a discount to their 10-year relative multiples versus the S&P 500. So, that can bounce back after two years of underperformance.

According to Hutchinson, the off-price retailers will also beat earnings estimates in the second half of 2022, which will serve as a catalyst for the stocks. Her top three picks are set to report quarterly results next month.

Supply chain issues could benefit off-price retailers this year

Hutchinson agreed that higher costs weighed on off-price retailers last year, but expects 2022 to be the year when the supply chain issues turn into a blessing in disguise for these companies. She added:

Think about those 100 ships sitting outside the Port of LA. Think about the six-to-ten-week delay in getting those containers unloaded. By the time they’re unloaded, they’re too late to head to the retail stores. That’s where the off-pricers get the best deals on great branded products.

Hutchinson expects margins to contract for the full-price retailers this year. Of her three picks, Ross Stores, which bought massive site in Phoenix metro for planned industrial facility last week, performed the worst in 2021 with the stock price ending down 8.0%.