Back-to-School Season Will Be a Boon for These Retailers

Back-to-School Season Will Be a Boon for These Retailers

Earlier this week, my wife came home from a trip to our friendly neighborhood Target store with a stunned look on her face.

"I've never seen Target that busy," she exclaimed. "It was insane!"

She then proceeded to describe crowded aisles, full shopping carts, and uncharacteristically long lines at checkout.

So what did everybody there have in common?

School shopping has begun
Though most schools already sent out their official supply lists weeks ago, it's safe to say frenetic back-to-school shopping is officially under way -- a fact of which I was brutally reminded last weekend when I finally came to the realization that my firstborn, 5-year-old daughter will start kindergarten in less than two weeks.

So, in an effort to distract myself from the disturbingly fast pace at which time is flying by, I came up with a list I believe represents the four most promising retailers our stock market has to offer that should be able to benefit from the back-to-school shopping season.

1. Target
First, of course, there's Target, which fell nearly 4% Wednesday after the company reported less-than-stellar second-quarter earnings, primarily resulting from the high cost of Target's ambitious expansion into Canada, where the company hopes to operate as many as 124 locations by the time the Chrismas shopping season begins.

As it stands, though, Target opened 44 Canadian stores during the quarter, bringing its current total well past the halfway point to 68 locations to help it take advantage of back-to-school shoppers.

But remember, Target also has a habit of rewarding long-term shareholders for their patience, and raised its dividend by a whopping 19.4% in June. For those of you keeping track, that marked the 42nd dividend boost by Target in its 46 years since going public in October 1967.

It's even more incredible, though, knowing Target achieved all of that without ever expanding beyond the borders of the United States until earlier this year -- a move which, as Wednesday's earnings showed, undoubtedly comes with risks of its own given the enormous capital expenditures required.

Even so, while Target management also warned they see "continued cautious spending by consumers" for the remainder of the year, I'm still convinced the company will be around to reward shareholders for many more school years to come.

2.Best Buy
Meanwhile, Best Buy is suffering no such short-term challenges following its own strong second-quarter earnings report, which absolutely crushed expectations and seemed to prove the electronics specialist's turnaround is firmly intact.

However, Best Buy's strong performance last quarter was propelled primarily by strong sales growth in both appliances and mobile devices, showing that Target's aforementioned cautious spending doesn't necessarily exist for more focused retailers selling the big-ticket items consumers really want.

Even better, while you can bet Best Buy is selling more than its fair share of dorm fridges and microwaves, it also stands to benefit as students around the country increasingly look to purchase new laptops, PCs, and tablets to help further their education.

3. J.C. Penney
Next up, during their own less-terrible quarterly earnings report Tuesday, J.C. Penney management was cheered by investors after saying, "the early weeks of the Back to School shopping period were encouraging, especially during the important tax-free holidays and promotional weekend periods."

As it turns out, former-turned-current J.C. Penney CEO Mike Ulman's efforts to stabilize the business appear to be working so far, even if he is benefiting from the giant inventory overhang bandage torn off by former CEO Ron Johnson in an effort to clean the company's slate and start anew.

Time will tell whether Ulman's immediate return to J.C. Penney's old sale-and-coupon-centric model will be effective over the long run, but back-to-school shoppers should certainly help over the short term.

4. Ross Stores
Finally, I'm offering discount clothing specialist Ross Stores as another company that should benefit from the back-to-school season.

But remember, Ross is all set to announce second-quarter earnings this afternoon, and you can bet we'll be watching closely to see how the second quarter went. That said, I'm particularly intrigued by this stock right now considering the fact that Markel's long-term-oriented President and CIO Tom Gayner just opened a small position in the discount retailer last quarter.

Naturally, like each of the companies mentioned above, Ross' website is currently plastered with back-to-school advertisements. So, given the increasingly strained budgets of cost-conscious consumers for items like clothing, I'd be surprised if Ross didn't see a significant boost in the third quarter from school shopping activity.

If anything, companies like Ross should also be able to grab at least some market share from higher-scale stores like Target, which has attempted to lure clothing shoppers by offering exclusive -- and slightly higher priced -- items from noted designers.

Foolish takeaway
In the end, I think there's plenty of room for all four of the above companies to thrive with the back-to-school season in full swing. At the very least, consider putting these stocks on your watchlist to help you determine whether they might be worthy of a place in your own portfolio down the road.

To learn about two other retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

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Fool contributor Steve Symington owns shares of Markel. The Motley Fool recommends Markel. The Motley Fool owns shares of Markel. 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.

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