Hopes for a turnaround at Best Buy (BBY) were dashed, at least temporarily. Though the consumer electronics chain reported better-than-expected quarterly profit and revenue on Nov.19, its comparable sales were below consensus forecasts.
Even more ominous in the eyes of investors was the company’s commentary about an increasingly “promotional” fourth quarter. That shouldn’t have been a shock since Best Buy sells consumer electronics, one of the most competitive areas in retail.
CEO Hubert Joly has earned kudos from Wall Street for making Best Buy relevant again by matching the prices of rivals such as Amazon (AMZN). Whether Joly can do this without sacrificing margins remains to be seen. Even with its recent setback, shares of BBY have skyrocketed more than 200% this year.
Of the discount rack stocks we discussed here, this is the only one that is worth investors’ time. Joly has made great strides in improving the consumer electronics retailer and has even won over founder Richard Schulze, who briefly considered taking the company private.
BBY stock trades about 17% percent under the average 52-week price target of $46.10. Given the launch of the PlayStation 4 and Xbox One, there is every reason to expect Best Buy to have a holiday season that will be jollier than many expect.
As for the others companies we discussed, you’re better off avoiding them like holiday fruit cake.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.