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BBY Stock Still Has Upside, Despite Last Year’s Run

Don't listen to the bears -- BBY stock still has room to climb

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During the holiday season, BBY was hunting for market share and willing to sacrifice profit margins to get it. Fourth-quarter results will likely be disappointing when it comes to profits, but I’d be very surprised if same-store sales in its US stores weren’t better than the 0.9% achieved in holiday 2012.

In November I did a pre-BBY earnings rundown that ended with my bold prediction that BBY stock would hit $60 (I must’ve had malaria) by the end of January. Best Buy reported Q3 earnings before the markets opened Nov. 19. With an extremely promotional retail environment on the horizon, BBY cautioned investors that profits would be lower as a result.

That news knocked the stock down 11% to below $39; it currently trades a couple bucks lower. Clearly, with Q4 earnings not out until Feb. 27 and likely to be mediocre, there’s no hope of reaching that number in the near term. However, I think it’s entirely possible to reach $60 by the end of the year. But all bets are off if it doesn’t deliver a Q4 same-store sales increase at its U.S. stores. That’s a must.

Bottom Line

Just as the same-store sales increase at its U.S. stores is critically important, it’s also helpful if its online business shows continued signs of improvement. In Q3, BBY generated a 15% increase in its online sales year-over-year in the U.S. I’d seek out that number as well when earnings come out.

I can’t say for certain how much of Best Buy’s cautionary stance in November is already baked into its price. BBY stock has lost about 13% so far, and I could easily see another double-digit drop once earnings come out.

I like BBY stock for the long term. However, you might consider selling February or even March $32 puts to generate some income while saving yourself some losses from buying today should the dip actually take place in March. Normally, I’m not a big advocate of options, but this is one time where it makes sense.

Regardless of what happens the next two months it should be very interesting for Best Buy and BBY stock.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

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