Graham and Buffett Back-to-School Picks

There’s a wide range of expectations for the retail sector with respect to this year’s back-to-school shopping results. In a recent article for Forbes, Validea CEO John Reese offers some data and insights on which retailers might make the grade.

According to the National Retail Foundation, an improved sales season would be the first in four years. Total spending for K-12 and college is expected to reach $75.8 billion, up from $68 billion last year.

Deborah Weinswig, head of Fung Global Retail and Technology, is quoted as saying, “We expect sales to reach near-record levels—up 2%-3%. There are more kids in school, and parents plan to shop earlier.” A recent CNBC article notes that the S&P retail ETF has risen by more than 2% over the past month alone.

While there are still some naysayers among the cheerleaders, Reese says Weinswig remains optimistic. “We’re seeing a different mindset,” she argues, adding “the consumer is feeling stronger and better.”

Using his guru investment strategies, Reese identifies the following stock picks:

  • TJX Companies (TJX) is an off-price apparel and home fashions retailer favored by the Warren Buffett-based model based in part on its predictable and continually expanding earnings-per-share over the past three years.
  • Ross Stores, Inc. (ROST) is a retailer of name brand and designer apparel, accessories, footwear and home fashions. The Buffett-based methodology likes this company’s predictable and steadily increasing earnings-per-share and its modest leverage.
  • Dillard’s, Inc. (DDS), a retailer of fashion apparel, cosmetics and home furnishings, earns a perfect score under the value guru Benjamin Graham-based investment strategy partly due to its healthy revenue stream (sales of $6.6 billion).
  • Foot Locker, Inc. (FL) sells shoes and apparel and is favored by the Peter Lynch-based investment strategy due in part to its price-earnings ratio (16.99) as compared to its earnings-per-share growth rate (21.25%).
  • Buckle Inc. (BKE) sells casual apparel, footwear and accessories. The Joel Greenblatt-based investment strategy likes the company’s strong earnings yield (earnings before interest and taxes divided by enterprise value) of 18.12%.


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