Best Buy Co Inc (BBY) — BBY stock jumped last week after Barclays initiated coverage with an “Overweight” rating and $45 price target, the highest target among the firms covering the stock. Barclays also added BBY stock to its list of “value picks,” but other analysts do not view the stock so favorably. And I am of the opinion that the recent bounce provides a good opportunity to short BBY stock.
S&P Capital IQ Equity Research considers Best Buy a high-risk investment, saying the consumer electronics retailer faces stiff competition from online retailers, thin profit margins and limited same-store sales growth opportunities. Its analysts expect revenue to fall 1% in fiscal 2017 (ending in January) and rate BBY stock a “Hold” with a 12-month target of $32.
Turning to the chart, BBY stock has been in a clearly defined bear market since it topped just below $42 in March 2015. Shares ran to the bearish resistance line in September and again in March of this year, but in each instance, they reversed down from it. We can also see that a death cross — a long-term bearish signal in which the 50-day moving average crosses down through the 200-day moving average — was triggered in November.
Last week’s rally on the Barclays coverage failed at the stock’s 200-day moving average, now at $32.63, and the MACD indicator has been negative since mid-March.
BBY stock looks to be a good short sale candidate at $32 with a downside target of $28, the current support line. If successful, this trade will result in a return of more than 12%; however, the support line is fragile, so short sellers could see even bigger profits. A stop-loss order should be entered at $35 to protect against theoretically unlimited losses in the event of a rally.
