It’s the time of year when students say goodbye to their much-loved summer vacations and say hello to classes again. Not only does this annual event have implications for pupils, parents, and teachers, but it also provides certain public companies with a lucrative business boost.
A team of Motley Fool contributors have identified three top stocks for the fall back-to-school season. Read on to see why Five Below (NASDAQ:FIVE), Mondelez International (NASDAQ:MDLZ), and Target (NYSE:TGT) all make solid investments right now.
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Mondelez is also estimating that its free cash flow will be over $3 billion. This gives it the financial fuel to help pay for those acquisitions, and to fund its dividend. Since effectively coming into existence (hived off from the former Kraft Foods) in 2012, Mondelez has paid a dividend in every quarter and raised it once per year. Across that stretch of time, it has risen from $0.13 per share to the present $0.35, for a yield of 2.3%.
So it’s basically a fine dividend stock with clear potential for growth thanks to its strong brand lineup and well-considered acquisitions. It certainly deserves a place in any investor’s pantry.
A one-stop shop
Jeremy Bowman (Target): The coronavirus pandemic spoiled back-to-school in 2020, but this year consumer-facing companies of all stripes are eager to capitalize on the return to school.
Arguably, none is better positioned than Target. The big-box chain has thrived over the last year thanks to its same-day fulfillment services, diverse product selection, and its omnichannel model offering a hybrid of in-store and online shopping.
Back-to-school is usually a bright spot for Target as it’s well positioned to sell apparel, accessories, electronics, and school supplies as well as home goods for college students arriving on campus. The retailer’s assortment of owned brands, which has been a bright spot for the company recently, also gives it an advantage over its retail peers, as many of the products that draw in Target customers are unique. For example, the company just launched a collaboration with popular children’s book author Christian Robinson.
On the recent earnings call in August, management said that back-to-school and back-to-college are “off to a great start,” and the company has introduced a feature in its app called School List Assist, helping users easily find all the school supplies they need.
Target is also better positioned than competitors like Amazon and Walmart to convert those sales into profits. The company’s retail business produces higher operating margins than those two rivals, thanks to Target’s focus on owned brands and its strategy of fulfilling most of its online sales through its stores. This is much more cost-effective, and often faster, than shipping them to the customer.
Finally, even after a strong run during the pandemic, Target shares look cheap, trading at a price-to-earnings ratio under 20. For a retailer forecasting high-single-digit comparable sales growth for the back half of the year, that looks like a great price.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.