Cramer: 6 Reasons This Stock Too Cheap to Ignore

Jim Cramer

With the holiday shopping season off to a terrific start, you may be tempted to playretail. But where exactly should you put money to work?

Retail is a tricky play right now because the fiscal cliff could drag many stocks in this space down into the abyss.

Also many retailers have run ahead of the holiday season - in other words, strength may already be baked into share price. Read More: Consumer Nation - Tracking the Pulse of America's Spenders
Market influences such as those outlined above suggest playing the sector broadly isn't the best move. Instead, investors need to be picky.

One stock that CNBC's Jim Cramer says may be worth a look is Ross Stores.

Here's why:

1. Recession Resistant

"Consider that since 2005, Ross Stores has only had a single quarter of negative same store sales growth—that was during the great recession in 2009. Just one quarter. That's an incredibly consistent track record," said the Mad Money host.

In other words, because Ross sells merchandise that's been marked down dramatically, business should remain relatively strong even if we go into a fiscal cliff induced recession, just as it did in 2009 as the nation struggled with a global recession.

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2. Value Play

"Ross was trading around $70 at the very end of the summer, it's now at $56 and change, down nearly 20% from its recent highs," said Cramer.

Also, "Ross is trading at just 14.4 times next year's earnings estimates. That's a big discount to its average historical multiple of 18 times earnings, and it's barely above the company's long-term growth rate of 13%."

"I say that's too cheap to ignore."

Of course that begs the question - is recent weakness a sign of trouble?

Cramer doesn't think so.

"Those worries about decelerating same store sales, I think they're completely overblown," he said.

"The company was up against some very difficult comparisons and it still managed to deliver a 6% plus increase in same store sales. And the weak guidance? In my view, management was simply being conservative—they're practicing UPOD, under promise and over deliver. Not a bad thing, because it means Ross Stores should be able to beat the estimates the next time they report," Cramer said.

3. Growth Potential

"Right now 'Ross Dress for Less' stores are located in 33 states, although they're mostly concentrated in California and the southern parts of the country. Meanwhile the company's 'dd's Discounts' stores are located in only eight states."

Cramer sees a niche waiting to be filled.

"The company's goal is to ultimately add another thousand 'Ross Dress for Less' locations and 500 more 'dd's Discounts', more than doubling their current store count. So Ross still has plenty of room to expand."

4. Strong Business Model

"Ross buys unsold merchandise from regular retailers like department stores at steep discounts when these companies are anxious to unload excess inventory at the end of the season. Then Ross will often pack the stuff away, store it for nine months, and then it put on the floor when it's relevant again."

"This pack-away strategy allows the company to be very opportunistic about buying merchandise," said Cramer.

5. Clobbering Rivals

"Ross is now taking huge share from JC Penney, " said Cramer, "to the point where management actually called this out on the conference call as a source of strength."

6. Shareholder Friendly

"They have a small dividend that yields just one percent, but the company has consistently increased that dividend every year for the last 18 years, most recently with a 27% boost back in January," said Cramer.

Also, "Ross has bought back a huge amount of stock since 2005, retiring 25% of the shares outstanding over the last seven years."

What's the bottom line?

"If you're looking for a retailer to own this holiday season, look no further than Ross Stores. This off-price outfit has a terrific growth story, it's relatively immunized against the fiscal cliff, and after this latest sell-off, the stock is real cheap.

I think that opportunity is too good to pass up," Cramer concluded.


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