Best Buy Company Inc (BBY)

(A Top Pick March 3/14. Up 41.1%.) A turnaround story. They were suffering a little bit from a competitive gap.

(Top Pick Mar 3/14, Up 64.50%) It is a turnaround story. They are comparable with any on-line retailer. This is a well run store and they match any price you might have on a comparable item.

(A Top Pick Feb 13/14. Up 58.2%.) They have really done a lot to change things. This was a turnaround story. Had a lot of handicap where people would shop online. Amazon started to introduce sales taxes by state, which reduced a lot of incentive. Also, they have been broadening out their line and have really turned it around. Has become more customer focused.

Retail does well From Jan to April except this year because of weather. Also, Oct, before Black Friday. There is some restructuring taking place. We are in a trading channel. He would not jump in right now.

This is a name that got pounded in the last little while, but it has already started to turn around.

Worst performer on the S&P thus far this year. This is a multiyear turnaround. It fell over 35% at the beginning of the year. Earnings were slightly disappointing. It leads in every single category that it has. They are turning around. They have the best price guarantee so a sales associate will match any price on Amazon. Amazon is starting to increase their rates in a way because they now have to charge sales tax in many of the states. There is a lot of low hanging fruit. They have to fix the website, fix customer experience a little bit, but if they can do that, they can selloff their Chinese affiliate which is worth hundreds of millions of dollars. Cheap and thinks it will be 30%-40% higher next year. Dividend yield of 2.67%.

With the great performance last year, it was an oversold stock and marginal expectations. They rationalized costs and continued to beat quarter over quarter. But he thinks the costs have been squeezed out of the business. If you see improvement of the bottom line next quarter you can get back in but right now it is in no man’s land.

Retail merchandising stocks tend to go higher at this time of year from September, right through until black Friday then the whole sector has a tendency to roll over because that is the peak of the good news for the sector. Chart shows this one had a nice run but is now showing resistance. Now is the time to take some money off the table.

This business is definitely under pressure. Like a lot of the big box format stores, they expanded and expanded and got into different areas of the market and became over saturated. The former chairman of the board is now back and things have improved. However, at the end of the day, the longer-term thesis is that the store format is to get much, much smaller and it has to address how the online retail businesses are essentially stealing their business. Thinks earnings power is lower over the medium term.

Chart shows a long downward trend line from the beginning of 2011 until the end of 2012. It then broke the trend line, which is a good time to be stepping in. It broke that in its seasonally strong period which means it is actually a good position to be in. Chart shows it is coming up to some resistance at about $20 and may have difficulty getting past that. If it does, then you hang on until once again it breaks the trend line and starts coming down.

Doesn’t like the business model. The reality is that one of Amazon’s fastest-growing areas is consumer electronics. They can sell these same goods cheaper and make more money than the box stores can.

There are a couple of different dynamics on this. Fundamentals on electronic retailing have not been good for a while because of the advent of online shopping. Also, the founder has been talking off and on of buying back the company. More of a gamble than an investment.

The fundamentals keep changing and there is no new product out there, deciding earnings, down next year. Likes to see the growth in earnings. They are still profitable but there are better places long-term to put your money.

Has a massive presence online. Probably trading at 4 or 5 times earnings compared to Amazon at about 100 times. Thinks people are overly pessimistic about this company. No question their business is in decline but maybe they’ll turn it around.

The problem that this and all the other big box stores have is that their lunch is being eaten by Amazon (AMZN-Q). The question is, if you are a Best Buy or Future Shop, how can you compete with online services that have no bricks and mortar, salesmen, maintenance, etc.?