Is Mid-Tier Retail the Next to Break Out?

There’s lately been a lot of focus on high-end retail, but Cramer thinks that mid-tier stores are about to get their due, especially if we get the compromise on unemployment benefits out of Washington that he expects.

If that turns out to be the case, then Kohl’s might be the stock of the group to own.

“Kohl’s is a turnaround story,” Cramer said, “one that also has a balance sheet which is practically overflowing with cash.”

A key metric for this value-oriented store is its growing store base: 1,100 locations in 49 states and counting, with 10 new outlets coming this spring and another 30 in the fall. Over the next several years, Kohl’s plans to expand that total store count to 1,400. In short, it’s not done growing.

Also, Kohl’s has done great job at cutting costs, and like Cypress Semiconductor and Texas Instruments, is aggressively buying back stock. So much so that it should add 23 cents to the company’s annual earnings per share.

One of the big drivers behind Kohl’s turn has been the higher-margin private-label clothing and exclusive-to-Kohl’s products, such as Vera Wang’s Simply Vera. Well, the company is poised to make even more money doing just that by increasing these kinds of products. You might know that Jennifer Lopez and Marc Anthony just signed on. This has brought higher sales and increased store traffic in the past, and Cramer doubts this time will be any different.

Oh, and the balance sheet: $2.4 billion in cash, which should grow to $3.2 billion by the end of the year. Kohl’s will put $1 billion of that toward its buyback.

Oddly, though, despite all this and even after reporting better-than-expected same-store sales for November, the stock sold off when that monthly report came out. Cramer thinks that’s an opportunity to buy in. And Kohl’s right now is trading at a discount to its peers when it using trades at a premium. That’s hard to imagine given all the aforementioned positives, which means those positives just aren’t baked into the stock.

If you want to take still one step down the trade-down latter, you might look at TJX Cos. , parent of TJ Maxx, Marshalls and Home Goods. Cramer likes its growing international business and its cheap stock. And while Q4 should bring some really tough compares, there is a good chance TJX will come through thanks to a rising momentum in sales, its store remodelings and rebranded image. (See: Fashionista commercials.)

And down to the last step there’s Walmart and Target , which are as low as you can go before you get to the dollar stores. Cramer said he can’t recommend either at these levels; Walmart because he thinks the stock is range bound until at least after the next quarter and Target because it’s run too much.

“I say wait for a pullback before being a buyer,” Cramer said.

When this story published, Cramer’s charitable trust owned Kohl’s.

Call Cramer: 1-800-743-CNBC

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