Bye, Bye Best Buy
It's been an exciting run since January of 2003 for many of us. The S&P has seen tremendous growth (better than any CD, that's for sure). Retailers such as Best Buy (BBY) have also enjoyed phenomenal growth over the same period. However, ladies and gentlemen, the gig is up. Short BBY now, while it's above $50. My price target is $45.
On the technical side, Best Buy has seen its price appreciate from ~$16 to ~$60 in just under 3.5 years. Viewing the 10 year monthly candles we see BBY formed a double top in 2006 and has been rapidly approaching that level in recent months. Bulls could show the support levels at ~$43 as evidence of strength but the top has formed with a bolder stance of resistance, relatively.
On the fundamental side, Best Buy has performed fairly well, especially as competitors such as Circuit City (CC) have fallen in overall corporate and in-store quality. While BBY holds a relatively strong position in their industry, general economic conditions do not bode well for this company or its shareholders. In the short term I expect retail figures to come in much worse than anticipated. There were several weather-related shopping blackouts in December. Combine that with a faltering U.S dollar (many of BBY's products come from abroad), increasing fuel expenses negatively impacting both businesses and consumers, the housing depression (yes, I said depression), frozen credit markets which are slowly creating a squeeze on average households, and the accounting methods used with gift cards (detailed following this), and we are shown quite a negative outlook. My question to you is this.... are your glasses rose-colored or clear? If they're rose-colored now, wait until your account starts bleeding.... then you'll be seeing red all over.
Disclosure: The author's firm has a 150 share long position in BBY and he has no position personally
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This article has 5 comments:
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CCinSC
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1 Comment
Dec 27 02:47 PMwhat a tired story....people have been saying the same exact things for probably 10 years, and what has the stock done? what has the company done?
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forest
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20 Comments
Dec 28 12:54 AMBesides, why would you short BBY when it doesn't trade that much higher than your price target? There are much better potential shorts out there right now.
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David Schrader
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27 Comments
Dec 28 09:36 AMEarning 10 - 15% on a short term trade is worth the time, in my opinion. Keep in mind, I'm not talking about a blow-up of BBY to $20/share, but a correction against resistance.
CCinSC
It may be a tired story to you if you've been following BBY for that long, but right now, I see the opportunity for a respectable ST profit. Also, the economy has not been through the issues it is currently facing for a long time ( I don't even when? ). Yes, the company's going to survive. No, their stock price is not going to $20. You're on a different time frame from me and that's where the issue is. All stocks fall 10 - 15% at times, even GOOG.
Take my article for what it is, a ST profit opportunity.
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David Schrader
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27 Comments
Jan 07 12:17 PMAs of 01/07/08 someone would have gained ~10% by shorting BBY since the article was published. And while now would be a great time to take profits, I still expect to see $45 or lower following a short term market rally this week. How do you like them apples?
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SchraderTrader
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19 Comments
Feb 15 12:21 PMBloomberg: BBY cuts forecast for 2008
www.bloomberg.com/apps...