Markets are coming in a little bit Monday afternoon, as the yield on the 10-Year Treasury is curiously slumping to about 1.16%. Our general approach to the broader market right now as we begin what could be a choppy August is to look for weakness to buy and strength to trim as we cycle through the general ebb and flow of the markets. One stock down about 10% from recent highs and lower today is AEO. Into the coming days, we will look to add to AEO into weakness.

Part of our bullish thesis on AEO is based on our view that this company will be one of the biggest winners from this year's back-to-school shopping season. Supporting our thesis, the American Eagle brand scored very high in the 2021 back-to-school season survey analysts at Piper Sandler published last Monday. Piper Sandler asked teens to name the top brand of apparel and footwear they plan to shop this season, and to little surprise to anyone paying close to the fashion trends within retail, American Eagle (12%) was the second-ranked choice in apparel behind Nike (NKE) (21%).

Further strengthening our point that AEO will be a back-to-school winner was a weekly mall traffic research note published by Morgan Stanley late Sunday night. Within their note, the analysts pointed out that they observed relatively longer register line counts at American Eagle, among other retailers, in the fourth week of July. That's a great tell of demand.

We also believe AEO is in a great position to benefit from the ongoing upgrade cycle in denim. Stifel gave a very strong endorsement of Levi (LEVI) earlier this morning, initiating coverage with a Buy rating and calling out what they see as a "multi-year denim upgrade cycle behind a post COVID-19 style shift to wider/ looser silhouettes and, for women, higher waist styles."

With American Eagle owning an 18% market share in the category as the number one jeans brand for 15- to 25-year-olds in the U.S., we think they will be a major beneficiary of this hot trend as well, meaning AEO should be trading higher on the bullish Levi Strauss & Co. call.