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As summer vacation is coming to a close, it’s time for students to head back to colleges and schools. This time around, however, back-to-college and back-to-school spending is expected to reach record-high levels as more students are expected to join institutions, and most notably, consumers are regaining confidence. The increased confidence can be attributed to an improving economy and healthy labor market.

As spending levels are poised to scale record highs, retailers have been witnessing an uptick in sales. Retail stocks are already moving north in a relief rally as second-quarter earnings came in better than expected. Given such bullish trends, investing in sound retail stocks seems to be prudent.

Back-to-College Season: A Big Event on the Horizon

According to the National Retail Federation’s (NRF) annual survey, back-to-college spending is expected to surpass $54 billion. This figure had bottomed out in 2015, declining 19% from the peak reached in 2012. But since then, spending has increased 25%.

Deciding to send your child to college will be one of the most expensive financial decisions a family will make, and back-to-college costs--think dorm room necessities and textbooks, for instance--add up. Families are expected to spend an average of $969.88 this year, compared with $888.72 last year.

College students expect to spend mostly on electronics, with costs poised to hit $12.8 billion. Back-to-college spending will also impact a wide variety of other industries, including clothing and snacks and food items, while online, discount, and department stores are pegged to be top shopping destinations for families.

Overall, back-to-school spending is expected to rise to its second highest level on record. Families with children in elementary through high school plan to spend a total of $29.5 billion, up from $27.3 billion last year. Parents are expected to spend an average of $204.33, $238.89, $130.38 and $114.12 on electronics, apparel, shoes and school supplies, respectively. In fact, it is shoes and school supplies that are expected to see the highest increase.

And this year, the combined back-to-college and back-to-school spending is anticipated to touch $83.6 billion. This will be the second biggest haul after $83.8 billion. Spending is likely to rise on pent-up demand following the prolonged recession when parents curtailed purchases.

What’s Behind the Upbeat Projections?

College enrollments have jumped this year, as students are more likely to live in off-campus housing, according to Katherine Cullen, director of retail and consumer research at NRF. This, in turn, will drive spending on home goods across several categories like snacks and beverages. Retail stocking stuffers, from Ramen noodles to futons, are well-positioned to lure these shoppers.

Electronics also constitute a large portion of students’ budget, as laptops are popular among 35% of this age group, while 40% plan to buy a tablet. Needless to say, apparel, footwear and classic school supplies continue to be popular among back-to-school candidates.

Not only are more young adults enrolling in colleges, thus boosting spending levels, but greater consumer confidence is also playing a significant role. And the more confident consumers are, the more they spend. As per a survey by The University of Michigan, the consumer sentiment index rose to 97.6 in August, the highest since January.

Consumer sentiment returned to peak levels on a more positive outlook for the overall economy. Americans spent more in the spring driving the U.S. economy beyond the $19-trillion mark for the first time. Real gross domestic product grew at an annual rate of 2.6% in the second quarter and almost doubled the downwardly revised 1.2% pace of growth in the first quarter.

Consumer sentiment was also driven by the strongest labor market in years. The United States added 16.6 million jobs since 2010, driving the unemployment rate down to nearly a 16-year low of 4.4%. In fact, the U.S. job market roared back to life in June, with a better-than-expected 222,000 job additions. Payroll in May and April was revised higher to 152,000 and 207,000, respectively.

Gad Levanon, chief economist North America, for the Conference Board said that “the strong job growth in June and the upward revisions for May and April suggest that the concerns about a major slowdown in job growth were premature”. Employment gains have averaged 180,000 a month this year and several economists believe that the economy might need to add only 100,000 jobs on a regular basis to maintain growth levels.

5 Retail Stocks to Rally on Back-to-College Shopping Spree

Back-to-college spending is expected to hit an all-time high, offering bright prospects for retailers and leading to a ramp up in sales. For now, retail stocks are on a rally, which is definitely encouraging amid speculations of decline in foot traffic, store closures, and bankruptcies.

We have, thus, selected five fundamentally sound retailers that can make the most of the back-to-college shopping season. Such stocks flaunt a Zacks Rank #1 (Strong Buy) or #2 (Buy) and a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Best Buy Co Inc. (BBY - Free Report) is a provider of technology products, services and solutions. The company is part of the Retail - Consumer Electronics industry. The company has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for current year earnings increased 0.8% over the last 60 days. The company’s expected growth rates for the current quarter and next are 11.3% and 3.4%, respectively.

Aaron's, Inc. (AAN - Free Report) is an omnichannel provider of lease-purchase solutions. The company operates under the Retail - Consumer Electronics industry. The company has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for current year earnings increased 7.1% over the last 60 days. The company’s expected growth rates for the current quarter and next are 10.7% and 10.3%, respectively.

Childrens Place Inc (PLCE - Free Report) is a pure-play children's specialty apparel retailer in North America. The company sells apparel, accessories, footwear and other items for children. It is part of the Retail - Apparel and Shoes industry. The company has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for current year earnings increased 1.5% over the last 60 days. The company’s expected growth rates for the current quarter and next are 7.6% and 11.6%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

Big Lots, Inc. (BIG - Free Report) is a non-traditional, discount retailer operating in the United States. The company is part of the Retail - Discount Stores industry. It has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for current year earnings increased 2.4% over the last 90 days. The company’s expected growth rates for the current quarter and next are 18.4% and 6.3%, respectively.

Burlington Stores Inc (BURL - Free Report) is a retailer of branded apparel. The company is part of the Retail - Discount Stores industry. It has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for current year earnings increased 0.8% over the last 60 days. The company’s expected growth rates for the current quarter and next are 15% and around 18%, respectively.

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