Back To School: Will Your Portfolio Make The Grade?
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The countdown to the dancing in the streets begins; one month until the kids go back to school. There may be dancing on Wall Street as well. It’s not too early to think about the companies that will benefit the most. The more organized ‘rents’ (parents) have already started checking things off their back-to-school lists.
The National Retail Federation 2012 Back to School Spending Survey is predicting a banner year for retail spending with back-to-college spending to rise from around $800 from last year to $900 and back-to-school expenditures for K-12 to rise from $603 to $688. While there is expected to be more bargain hunting than ever, shoes and electronics look to be the big winners, followed by clothing, school supplies and dorm furnishings. See NRF release http://www.nrf.com/modules.phpname=News&op=viewlive&sp_id=1405
The Well Shod Student
Shoes, in particular athletic shoes, are always top items on parents' shopping lists. Retailers have been featuring Nike (NYSE: NKE) and Under Armour prominently in Sunday supplements, on TV, and on the web. While Nike disappointed a few weeks ago, back-to-school is a strong season, and it also has the Olympic push coming this week. Nike is trading in the middle of its 52 week range, has a P/E of 19.68, and yields 1.50%.
Under Armour not only benefits from shoes but also from the high school teams that are already suiting up for August practices. It reports July 24 and its current P/E is a high 52.26, but it has doubled since its low of 26.31, split adjusted. See more on Under Armour and Nike here.
Foot Locker, Inc (NYSE: FL) is also a name that benefits from back-to-school, as well as being a play on global obesity; it is one of 50 stocks named in a recent Bank of America note explaining the trend, as people want to look good and feel good while they work out. This one is particularly attractive with a 2.20% yield, and it has the lowest P/E of these three at 16.24. It is trading close to its 52 week high and reports August 13.
The ‘Wired’ Student
More students than ever are tethered to the web. Aside from all its other product introduction news, Apple Inc (NASDAQ: AAPL) should fare very well, as it’s been running a Back to College promotion, offering gift cards with purchases of Macs and iPads, as well as further discounts with its Apple Education Pricing. Apple's earnings pullback could present a buying opportunity ahead of tech’s traditional best quarters in the latter half of the year. The company has a 14.72 P/E, and its iPods and iPhones will surely be big back-to-school hits as well. Analysts and retail investors still love this name.
Amazon.com Inc (NASDAQ: AMZN) benefits from back-to-school in four ways: Its Kindle Fire as an affordable tablet alternative to the iPad; Prime membership for college students, which offers them free shipping as well as streaming content; college textbooks available for much cheaper than the college bookstore; and comparison shopping for hot back-to-school electronics. Amazon does have a most astounding P/E of 188.51 and a PEG ratio of 5.49, but recent moves to offer same day shipping to Prime members is absolutely going to be an advantage for students shopping online at Amazon. This is also the year that more and more professors will likely start to offer an ebook option to their students. Having bought textbooks from Amazon over the last few years, I am a very pleased ‘rent’ with their service and savings.
In a somewhat out there derivative on being ‘wired’, I have to mention Monster Beverage Corporation (NASDAQ: MNST). Students will be buying energy drinks as the pressure on academic performance mounts. Monster is the big publicly traded name in this category and also offers many of the other beverages beloved by thirsty students with teas, sodas and juices. I certainly don’t think dependence on energy drinks is a good thing, but they will buy this stuff whether parents condone it or not. Monster is trading well below its 52 week high of $83.56 and still has a high P/E of 39.38. It reports August 12. See more on Monster here.
The Well Dressed Student
Department stores Macy’s and Kohl’s should expect increased traffic, according to the NRF survey results, as both offer dorm linens, bedding, and clothing. Macy’s Inc has the advantage of the localized product line, "My Macy's," as well as the big name fashion brands. Macy’s has an 11.66 P/E and a 2.20% yield. This one is trading at $35.60, down from its 52 week high of 42.17. It reports August 8.
Kohl’s Corp. is the other name to benefit, and is advertising aggressively in advance of back-to-school. It has a P/E of 11.31 and a yield of 2.60%. Confused JC Penney shoppers have been coming to Kohl’s for the specials and coupons they rely on for savings. Like Macy’s, it’s down from its 52 week high of $56.66 at a Friday close of $48.76. Kohl’s reports August 9.
Bed, Bath & Beyond Inc benefits to a lesser degree than the department stores, but it is the easiest place to find a variety of those Extra-Long sheets and bedding that dorm rooms require now, as well as the assorted paraphernalia the college student away from home has to have. The 20% off mailings are familiar to most of us and come in mighty handy before college starts again. Bed Bath & Beyond has a 14.46 P/E and is trading in the middle of its 52 week range of $48.75-$61.63.
No More Pencils, No More Books
Those kids will need plenty of school supplies, paper, pencils, notebooks, backpacks and clothes. Staples, Target and Wal-Mart are the biggest beneficiaries, with loss leader school supply specials bringing in foot traffic for the high ticket electronics. Target Corp and Wal-Mart Stores Inc are the better names as they also offer the shoes, the clothing, and the dorm furnishings for one stop bargain hunters. Another thing those two do right is offering localized shopping lists for public schools, available at the stores for their customers’ convenience. Target and Wal-Mart are trading near their 52 week highs and have been outperforming these last few months. Target has a P/E of 14.16 and a 2.30% yield while Wal-Mart has a 15.56 P/E and a 2.20% yield.
The dollar stores in general will likely not receive as much upside from back-to-school, as they don’t carry as much of the shoes, clothing or even school supplies. But Five Below Inc is one name that tweens, teens and college students will patronize for cool dorm furnishings, graphic tees, electronics accessories, and other tchotchkes. Five Below just debuted on July 20 and ran up 49%, but this is a speculative play on the faddish teen consumer.
All of these retailers should expect better Q3 numbers year over year as the ‘rents’ scour the net and brick and mortar stores for the best deals. If you can amass a position in some of these stocks on dips and earnings pullbacks, your portfolio may get an A for performance by year end. And then you’ll want to dance in the streets.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, and Under Armour. Motley Fool newsletter services recommend Amazon.com, Apple, Bed Bath & Beyond, Monster Beverage, Nike, and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.