We recently published a list of the 10 best analyst recommended stocks to diversify your portfolio away from mega-cap tech and AI stocks, and TJX Companies Inc (NYSE:TJX) ranked #6 on the list, so it's worth taking a closer look.
Venu Krishna, head of US and global equity-linked strategies at Barclays, recently shared some stock recommendations that offset the risks from the market's concentration in big tech stocks. In an interview with CNBC, Krishna emphasized that his bias toward big tech stocks remains, but the key question he raised is which stocks outside of the tech sector offer more value in the long run.
Krishna's method for finding quality stocks outside of the tech sector is simple: Find the “core fundamental” metrics that big tech stocks “excel in,” and then “create a portfolio that gets close to that and can provide that type of exposure.” Through this methodology, Krishna says, he has devised a well-diversified stock portfolio that can act as a “hedge” against market concentration in big tech stocks.
Krishna said he applied a “liquidity filter” to the entire market, eliminating “a lot of companies” and narrowing it down to stocks with strong growth and FCF multiples.
Venu Krishna, while noting the issue of profit concentration, believes the rally in big tech stocks is a “healthy trend” and that some of the gains are beginning to trickle down to other sectors.
But Krishna said that over the past 18 months, his stock portfolio has outperformed both the equal-weighted S&P 500 and the market-cap-weighted S&P 500, though it has lagged the big technology companies.
In this article, we've selected the 10 stocks from Krishna's latest basket of stocks to offset risk concentration in large technology companies, with hedge fund investors placing the most weight on them. Why do we care about hedge fund concentration? The answer is simple: our research shows that you can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small and large stocks each quarter, and has returned 275% since May 2014, beating the benchmark by 150 percentage points (more here).
A busy retail floor with customers trying on clothes and browsing merchandise.
The TJX Companies (NYSE:TJX)
Number of hedge fund investors: 63
Barclays believes TJX Companies Inc (NYSE:TJX) is one stock that could be a good choice for investors looking to diversify their portfolios and hedge against risk in concentrated markets. In May, TJX Companies Inc (NYSE:TJX) announced strong Q1 2025 results, indicating TJX is benefiting from the current inflationary environment. TJX Companies Inc (NYSE:TJX) also raised its full-year EPS guidance to $4.03-$4.09 from a previous guidance of $3.94-$4.02. The company expects same-store sales to grow 2-3% and pre-tax margins to be 11-11.1% (previous guidance of 10.9-11%).
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TJX Companies Inc (NYSE:TJX) continues to perform well despite rising inflation. Analysts believe the discount retailer will survive (and even thrive) as consumers favor discount stores during tough times. In the first quarter, TJX Companies Inc (NYSE:TJX)'s home goods business saw same-store sales increase 4%. Overall, TJX's same-store sales increased 3% in the first quarter, hitting the high end of management guidance. Analysts expect the second quarter to be stronger than the previous quarter as foot traffic is expected to increase over the summer.
Wall Street expects TJX Companies Inc. (NYSE:TJX) earnings to grow 10% next year, with sales expected to grow 5.5%. The company's shares are trading at 24 times forward earnings, which isn't too expensive when you consider the company's long-term growth drivers.
In its fourth-quarter 2023 investor letter, Madison Investments U.S. Equity Strategy said the following about The TJX Companies (NYSE: TJX):
“Whether it’s performance by market cap, sector, or other factors, stock markets are cyclical in nature. Some cycles are long-term, taking decades to unfold, while others are short-term, lasting months, weeks, or even days. Many are of intermediate length, lasting two, three, or even a few years. Most cycles occur because a trend often creates the seeds of its own reversal. We at Madison Investments are confident that market cycles occur, but that doesn’t mean we can predict their timing or magnitude. We don’t believe we can. This is perhaps a big difference between us and many other investors. Most investors think it’s their job to time market cycles, despite overwhelming evidence that it is nearly impossible to time them with enough precision to make a profit over the long term. We avoid judging market cycles and don’t spend any time thinking about them at all, not because we think they aren’t important, but because we believe their duration is inherently unpredictable.
This thinking from our team also applies generally to other types of cycles, such as macroeconomic, industry, and company-specific cycles, although we are a bit more nuanced when it comes to those. We don’t make definitive predictions about the cycles that will drive our buy and sell decisions. Still, we are acutely aware that there are various cyclical forces at work, and we may incorporate them to varying degrees depending on our ability to assess their length and intensity.
Here are some examples to illustrate our point: We have been investing in off-price retailer TJX Companies, Inc. (NYSE:TJX) for just under a decade, since investing in the company in 2014 with our large-cap strategy. TJX is one of the most recession-proof companies we own due to its enduring value proposition for customers. Customers always like to save money, but especially in tough economic times. As a result, the company has maintained a very stable revenue and profit profile over the past few decades…” (Click here to read the full article)
Overall, TJX Companies Inc (NYSE:TJX) ranks 6th on Insider Monkey's list of “Analyst Recommended 10 Best Stocks to Diversify Your Portfolio From Mega-Cap Tech and AI Stocks.” While we acknowledge the potential of TJX Companies Inc (NYSE:TJX), we believe AI stocks have a better chance of delivering higher returns in a shorter time frame. If you're looking for AI stocks that are more promising than TJX Companies Inc (NYSE:TJX) but are trading at less than 5x stock price, check out our report on the cheapest AI stocks.
Read next: Analyst sees new $25 billion 'opportunity' in NVIDIA, Jim Cramer recommended these 10 stocks in June.
Disclosures: None. This article was originally published on Insider Monkey.
