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Stocks That Will Win from Strong Consumer Back-to-School Buying

Lee Jackson

Most of the big retailers had a “choppy” July, and many are hoping for a strong back-to-school selling season. Since school starts around the country anywhere from mid-August in the South to the day after labor day in other parts of the country, many retailers are forced to regionalize their advertising strategies. Since consumer sentiment has clearly improved, many top retailers are feeling pretty good about this years back-to-school frenzy. Plus, moderating temperatures after a scorching hot summer could give retailers just the boost they need. We reviewed numerous Wall Street research reports looking for the top stocks to buy and found a solid list.

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Wal-Mart Stores Inc. (WMT) is the ultimate destination for any family on a tighter budget. The country’s biggest retailer offers everything from groceries to clothing and car supplies. Walmart has become a true one-stop-shop. The Thomson/First Call estimate for this top Dow Jones name is $81.50. Investors receive a 2.4% dividend.

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TJX Companies Inc. (TJX) always does very well with the cost conscience shopper. The company also plans to open an online store this year to increase sales. The company operates its stores under the T.J. Maxx, Marshalls, HomeGoods, Winners, HomeSense, T.K. Maxx and Sierra Trading Post brands. The consensus price target for the stock is at $56, and investors are paid a 1.1% dividend.

Target Corp. (TGT) is one of the top stocks to buy at Wall Street firms betting on a strong selling season. Households with children spend roughly 20% more annually at Target than patrons with no children, according to Target Senior Vice President of Merchandising Trish Adams. That bodes well for this top retailer. The consensus price target for the stock price is $74. Investors are paid a 2.4% dividend.

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Ross Stores Inc. (ROST) is another discount retailer sure to play well with families on a tighter budget this year. Ross's big initiatives of late include operating stores with lean inventories and catering local stores to market demands. Both should help with lower future markdowns. Ross managed to enter fiscal 2013 with average inventories down 3% from 2012, and plans to target another low-single digit decline in 2014. The consensus price target for this top name is $72. Investors are paid a 1% dividend.

Gap Inc. (GPS) has roared back into prominence as a top retail stock to buy. As of July 26, 2013, the company's share price has risen 49.52% year-to-date and 55.75% over the past year, versus only 18.60% and 24.14%, respectively, for the S&P 500. With six major brands, including Banana Republic and Old Navy, the Gap can offer products in all price ranges for consumers. The consensus price target for the stock is $47. Shareholders are paid a 1.3% dividend.

Abercrombie & Fitch Co. (ANF) still remains a top destination for a more well-heeled back-to-school crowd. The company is set to report its summer quarter in late August and has a pretty low bar to hit. Wall Street only expects 1% sales growth and earnings around $0.30 per share. This could give investors some solid upside on a strong beat. The consensus price target for the stock is $59. Shareholders are paid a 1.5% dividend.

American Eagle Outfitters Inc. (AEO) was lagging behind the other major specialty retailers in fashion products. Now it is back in the game with key fashion categories, which will share more shelf space with core products. The consensus target for this top teen retailer is $23.50, and investors receive a respectable 2.5% dividend. Unfortunately here, this one just warned on sales and earnings, and its shares are getting pounded.

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Market veterans know how much the months between August and January mean to the retail stocks they follow. Heavy shopping opens with the back-to-school promotional offers and winds down with the post-holiday clearance sales. Despite tepid economic growth, the consumer appears to be on much better footing this year than in recent years. With many states having sales tax holidays in August, investors may get the jump by buying some of these top stocks now.

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