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The Most Epic Back-to-School Season Ever: 2 Stocks to Watch

By Parkev Tatevosian - Jun 28, 2021 at 11:46AM

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Spending usually increases with back-to-school shopping. That effect could be magnified this year.

The 2021 back-to-school shopping season could be the most epic ever. Millions of students worldwide will be preparing to return to in-person learning for the first time since March 2020.

The coronavirus pandemic forced an abrupt shift to online instruction for students of all ages. The return has been more gradual, as some states and countries have already brought students back to in-person learning. Still, the fall semester of school will see the biggest group yet returning from remote instruction. 

Two companies that are in a position to benefit from students returning to school are Target (TGT -1.31%) and Chegg (CHGG 1.97%). Let's take a closer look at why investors should keep an eye on these two stocks. 

A father getting his daughter ready for school.

Image source: Getty Images.

1. Target 

A return to in-person learning can create the need for students to buy school supplies, clothes, and electronics, all of which can be found in one trip to Target. My son started the pandemic in kindergarten, and when he goes back to school in August, he will be a second-grader. He will need new clothes, new shoes, and other school supplies. 

Surely, that will be the case for millions of students worldwide. What's different for this year is the especially longer time it has been since kids were last in school. In a typical back-to-school season, sales are brisk, even though students were out of school for a few months through summer. This time around, kids haven't been in school for over a year, so sales could be even greater. Investors should keep an eye on how that plays out.

A student studying.

College enrollment fell by 603,000 students in Spring 2021. Image source: Getty Images.

2. Chegg

Chegg, the online student learning aid, experienced a surge in demand during the pandemic. The company serves mostly college and high school students, and when instruction moved online, students were missing the vital interaction with instructors and teachers. Still, subscriber growth was robust even in the years before the pandemic. Students find its services helpful and a relative bargain at less than $20 per month.

The pandemic wasn't all positive for Chegg's business. Many college students with the choice of going through remote instruction or taking time off chose the latter. Indeed, college enrollment fell by 603,000 students in the spring semester of 2021, the biggest decline in a decade. Further, many students who chose to attend college instead of taking a semester off registered for fewer classes than they normally would.

With nearly all colleges offering in-person instruction in the fall semester, enrollment will likely increase; students are also likely to take more classes to make up for the lost time. That means more potential students that could benefit from Chegg's services. 

Investor takeaway 

The back-to-school surge in spending at Target and Chegg could be an extension of a COVID-induced increase in revenue. As economies reopened, there was a worry among investors of a snapback of spending at businesses like Target and Chegg that benefited during the pandemic. The thesis has not played out, and it could be giving credence to the counterargument that habits formed during the pandemic are going to stick around long term. Target and Chegg are certainly working at helping consumers maintain those habits and stick with them. 

 

Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool recommends Chegg. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Target Corporation Stock Quote
Target Corporation
TGT
$173.05 (-1.31%) $-2.29
Chegg Stock Quote
Chegg
CHGG
$21.18 (1.97%) $0.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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