Look Outside the Box for Back-to-School Stock Deals
I can’t believe I’m saying this, but it’s back-to-school time again.
I definitely got caught unprepared.
We’re still in the thick of the summer heat… and summer market volatility… but kids are already heading back into the classroom.
I dropped my youngest son off at school on Monday and he quickly texted me to tell me he had no pen in his backpack, we forgot to buy him a new lunchbox, and he needed new notebooks. Oops! A lot of learning is digital these days, but I guess I’ll be hitting the stores this weekend.
And I now have two kids in college – one a sophomore and another a freshman. They’re both long drives away, and I already carted my freshman back and forth for orientation and summer activities, and I’ll be hitting the road again in the next couple of weeks as they start classes.
I may be behind the curve, but I know I’m not the only one. Most families have already gone back-to-school shopping, and others need to do it soon. Whatever the timing, a chunk of money is involved.
Just take last year. Americans spent a total of $135.5 billion for back-to-school and back-to-college shopping, according to Capital One Shopping.
For just one child, the average cost of school supplies was $597, and consumers expect to spend 14% more per child this year.
Those couple of things my son said he needs sure won’t cost $680 even if it feels like it, so as I said, I have plenty of work to do.
To give families a little break, approximately 20 states hold tax-free weeks around back-to-school time. You can buy things like clothing, footwear, and school supplies without paying sales tax on the designated dates. (Sorry, it doesn’t work on cars or houses or other insanely expensive items).
With all that money being spent, I couldn’t help but look to see if there were any good back-to-school deals for us investors. Let’s run a few retail companies through my Quantum Edge algorithms and see what we find.
Are the Big Names Big Winners?
When you think back-to-school shopping, what first comes to mind is probably Target (TGT), Walmart (WMT), and Office Depot (ODP). Most likely because of all the back-to-school commercials and huge instore displays.
But you’re not alone. Nearly 80% of consumers name mass merchants like those as their top shopping destinations.
Target (TGT) claims to sell school supplies starting from just $0.15 – sure enough, the site shows a 2-pocket paper folder for a dime and a nickel. And they do plenty of other sales and promotions to entice parents, starting in early July.
Source: TradeSmith Finance
TGT is 20% off its 52-week highs back in April, but that weak Quantum Score of 43.1 doesn’t necessarily mean it’s a bargain buy. The score is dragged down by its poor technicals at 32.4, but the fundamentals aren’t the strongest either at 58.3. Remember, stocks in the optimal buy zone generally have a Quantum Score between 70 and 85.
Target’s sales shrank last year by 1.6%, and they’ve grown just 4.9% the last three years. Discount retail is also a low-margin business, and TGT sports a 3.9% profit margin. Debt is pretty abysmal at 158.2% of equity.
We haven’t seen any of those important green lights – or Big Money buy signals – in a while. In fact, my system shows five sell signals in the last three months, with three already here in August.
Walmart (WMT) is right up there with Target when it comes to back-to-school shopping. They also run numerous sales and have everything kids could possibly need or want.
WMT’s Quantum Score is much better than TGT’s at 63.8. Still not in my preferred buy zone, but not too far off. It’s interesting that WMT’s fundamentals rate identically to TGT at 58.3, but WMT shares have traded better, bringing the technical score up significantly to 67.6.
I see a similar story with the fundamentals. One- and three- year sales growth is just okay at 6% and 5.1%, respectively. The company also has a low profit margin and carries a lot of debt at 73.1% of equity.
WMT ran up today after beating earnings estimates and raising its full-year outlook, which in turn helped boost the whole market as investors relaxed consumer and recession fears a little bit.
I don’t expect the Fundamental Score to change significantly when my algorithms get hold of the updated data, but we could well see additional Big Money buy signals, building on the five in my system over the last three months.
And with ODP Corp. (ODP) – or Office Depot and Office Max – there’s not much to argue for. The company has a horrible Quantum Score of 29.3, with fairly weak fundamentals of 45.8 and extremely weak technicals of 17.6.
I don’t think I need to say any more.
There must be some good back-to-school stocks, right? We might need to think a little outside the box.
Crocs (CROX)
Source: TradeSmith Finance
Love them or hate them, Crocs (CROX) are back, and in a big way. The iconic – or infamous – shoe brand is having another moment, especially with younger generations.
The company has even collaborated with celebrities like Post Malone and Justin Bieber. And in 2022, they partnered with high-fashion shoe designer Balenciaga to create the Croc Madame – basically a rubber stiletto. They retail for a whopping $625!
According to Fashion United, Crocs is now the world’s most popular fashion brand, selling more than 150 million pairs annually. In 2023, the company grew sales 11% and profits 47%. They anticipate about a 4% increase in revenue this year.
Crocs is taking advantage of kids going back to school like most other retailers and even has a back-to-school section on their website.
CROX ranks well in my system with a 65.5 Quantum Score. While that’s not quite in my optimal buy zone, I like the fundamentals at 70.8. It has excellent three-year sales growth of 44% and a profit margin of 20%. What I don’t love is the company’s debt at 137.2% of equity.
Still, shares had a rough stretch from late June to early August. They have bounced since the massive market-wide selloff on Aug. 5, and a little bit more strength would probably be enough to kick the Quantum Score back above 70.
Revolve (RVLV)
Source: TradeSmith Finance
Now we’re getting somewhere.
Revolve (RVLV) is a popular fashion retailer, mostly for Millennials and Gen Z. They sell clothing, shoes, and beauty products are all price points.
You can see the company falls right in my optimal buy zone with an impressive 75.9 Quantum Score and even better technicals at 85.3. That high technical score is likely due to a spike in Big Money buying the day after the company released second quarter earnings.
RVLV reported revenue of $282.5 million, beating estimates of $277.1 million. Earnings per share were 22 cents vs. expectations of 14 cents – a whopping 59.3% surprise. The company’s fundamentals aren’t spectacular but are still pretty solid at 62.5. I’d certainly have this company on my radar after the stellar second-quarter earnings report.
Bonus Stock
While we’re on a roll, let me give you one more highly rated out-of-the-box “back-to-school” company.
On Holding (ONON) is actually the top-ranked apparel company in my system. On is a Swiss athletic shoe and performance sportswear company.
The company has an outstanding Quantum Score of 79.3, with strong technicals of 82.4 and excellent fundamentals of 75. I love all of those numbers.
I also see seven flashing green lights in the last three months. Those are the Big Money buy signals we look for.
When it comes to back-to-school shopping, I think it’s best to stick to those big-name box stores for the actual school supplies… and think outside the box for back-to-school investing deals.
Look for the high-quality companies with strong fundamentals, superior technicals, and Big Money buying in.
Talk soon,
Jason Bodner
Editor, Jason Bodner’s Power Trends