Investors should shop, too.
August means its back-to-school time. For retailers, the back-to-school season is the second-most important shopping season after the winter holiday season. IHS Markit forecasts 2018 back-to-school retail sales to rise 4.9 percent versus last year, which would be the strongest growth rate since 2014, which was up 5.1 percent. Kristen Perleberg, senior research analyst at The Leuthold Group in Minneapolis, says the consumer discretionary sector, which has seen a great run already, could have further to go. While picking up some school supplies for the kids, consider some of these stocks for your shopping list.
Kohl’s Corp. (ticker: KSS)
Department stores are unloved as malls are considered a dead zone, but that makes certain stores undervalued, Perleberg says. Kohl’s is one of several department stores Leuthold Group recently bought. Even with a price rally — up 110 percent on a 52-week basis — the stock remains a good value and has momentum. Kohl’s price-earnings ratio is 14, which puts it under the broader S&P 500 index P/E ratio of 15. Tax reform helped department stores and Kohl’s is keeping a lid on spending. Retail sales are on the rise in both broad retail sales and the clothing subset are climbing above long-term median levels year-over-year for the first time since 2014.
Nordstrom (JWN)
Nordstrom is up 40 percent from a year ago, and it should keep going. Another department store name owned by Leuthold Group, Nordstrom appears to have put in a long-term price bottom on technical charts, Perleberg says. Nordstrom’s upscale clientele may help it also benefit from the continued expected strength in the consumer discretionary sector. “The recent surge in stocks appears to have much to do with benefits of tax reform coupled with market sentiment finally overriding (department stores) perceived demise,” she says. “Tax cuts were not only good for the high tax-paying department store companies, but also store patrons’ pocketbooks.”
Dick’s Sporting Goods (DKS)
Back-to-school means a return to athletics. Michael Ebeling, research analyst at Heartland Advisors in Milwaukee, likes DKS. As value buyers, Heartland looks for companies with good balance sheets and a long-term view. Ebeling says Dick’s free cash flow will accelerate after spending $100 million last year to build a distribution center to better serve its e-commerce site. Management owns a large chunk of stock, and the CEO founded the company when he bought two stores from his father. Dick’s now has 800 locations. “He truly is able to look past the short term, invest for a long term and have a vision for the company,” Ebeling says.
Genesco (GCO)
This specialty retailer owns a few brands you’ve heard of: Lids, Johnston & Murphy, Schuh and Journeys Shoes. Ebeling says the firm, which is down on the year, is getting overlooked because many of its stores are in malls. But he points out Journeys has very high same-store sales and margins are expanding. Ebeling says Genesco has good cash flow and is growing its e-commerce business. Activists have board seats, too, so there may be movement to sell part of the company, which could unlock value.
AT&T (T)
John Person, president of investment newsletter Persons Planet in North Palm Beach, Florida, says as smartphones become more ingrained in culture, younger children are getting them and that means parents are looking for family cellphone plans. The stock has been under some pressure due to regulatory issues regarding its purchase of Time Warner, but those should dissipate now that the purchase was approved. Person says AT&T is showing positive technical chart momentum, having posted strong weekly closes. It has a low P/E ratio of 6.47 and has a big dividend yield of 6.17 percent. “As a phone carrier, AT&T will dominate domestic and I expect to see further upside,” he says.
Nike (NKE)
Nike has some of the top brand loyalty for athletic apparel, Person says, especially when it comes to sports like football and soccer. In its footwear division, Person says Nike has more brand loyalty than its nearest competitor. With the price around $80 a share, it’s a little higher than where he’d like to buy it, so he sees opportunities to buy it lower on breaks. “It has a good story from the consumer discretionary side and it has the right product mix at the right time,” Person says. “It’s had a nice upside bias in the past few months.”
DSW (DSW)
In addition to athletic footwear, kids (and their parents) will need casual and formal footwear for school or work. And as the days turn to fall and winter, sturdier shoes are necessary. Person says DSW, a discounter shoe retailer, stocks footwear for kids and adults. The stock is seeing some upside technical chart momentum, which he defines as prices making higher highs and higher closes. It’s currently trading around $27, but he says buying it between $25 and $26 would be a good value. “It’s broken out of a resistance band that was formed since July 2016 and taken out that level. My upside target is around $35,” Person says.
Dollar Tree (DLTR)
When parents shop back-to-school, they don’t always get all their supplies at once. Dollar Tree is a popular choice with savings-conscious consumers, Person says. That could mean parents make more school shopping trips once their kids tell them of the extra supplies they need. Dollar Tree has a respectable P/E ratio of 13.5, and he sees Dollar Tree as a better value than another competitor for basic back-to-school shopping, Target Corp. (TGT). The stock is trading around $95, and based on positive technical chart momentum, it could rise to $110.
More from U.S. News
8 Sports Companies to Game the Stock Market
The Top 10 Investment Portfolio for Millennials
7 of the Best Stocks to Buy for 2018
8 Back-To-School Stocks to Buy Now originally appeared on usnews.com
