advertisement
Along with many other consumer-related stocks, Best Buy (BBY, news, msgs) has fallen well off its highs. Investors and traders have been spooked by ugly news on liquid crystal display televisions and the possibility that consumer spending could slow down.
However, I'm putting Best Buy on my radar screen. If the stock pulls back to the low $40s, it would be an incredible value ahead of what I believe will be a fantastic holiday season for the company.
I don't believe for one second that TV sales are weak. Both Best Buy and Circuit City (CC, news, msgs) have reported triple-digit comps in televisions, and the smaller consumer electronics retailer Tweeter recently noted that it had trouble stocking enough 50-inch plasma televisions, which cost upward of $3,000.
In other words, there are too many LCD TVs chasing too few consumers, but the sets are still being bought in huge numbers.
Since televisions are selling well, it appears to me that the LCD-related problems reported by companies such as 3M (MMM, news, msgs) are a result of overexpansion on the part of the panel makers. (Remember all the new-plant announcements over the past few years?)
It also appears that LCD panel makers overestimated World Cup-related demand, which is mainly a European issue, anyway. Besides, LCD technology itself is an issue here, because it performs better in well-lit rooms. Bar and restaurant owners, big buyers of flat-panel televisions, likely opted for plasma, which is better suited to darker rooms.
Big holiday season ahead
I believe Christmas will be strong for Best Buy for the following reasons:- Any global surplus of LCD TVs could push prices down even faster than anyone may expect, which would drive massive volume during the holiday season. This could lead manufacturers of televisions powered by competing technologies to more aggressively cut prices as well.
- Best Buy will have three new video-game consoles to sell this Christmas season; it had just one last year. Microsoft's (MSFT, news, msgs) Xbox 360, which debuted last November, was in very short supply during the holiday season last year. In addition, there were very few quality games out for the platform then. But the console will be widely available this time around, and improved software titles won't be in short supply. In addition, Sony (SNE, news, msgs) and Nintendo (NTDOY, news, msgs) will have new machines out. I believe Nintendo's goofily named Wii console will be the most popular consumer electronics item in the world this holiday season, and Best Buy should get healthy allocations of the device. Plus, sales of Nintendo's and Sony's handheld gaming devices are likely to be enormous.
- According to Morgan Stanley, Best Buy is testing sales of Apple's (AAPL, news, msgs) computers. Although a bigger rollout of Macs would benefit Apple more than it would Best Buy, it would help offset what should be a dreadful holiday season for Microsoft Windows-powered desktops. Apple will also likely have another variation of the iPod out by the end of the year. (Editor's note: Microsoft is the publisher of MSN Money.)
Why wait?
Obviously, inflated gasoline prices (especially in light of escalating tensions in the Middle East) and a potential economic slowdown put Best Buy at risk. But even if the overall consumer spending pie gets smaller, electronics are clearly getting a bigger slice, offsetting some of that risk.So why wait for a pullback? Frankly, the action in the stock has been absolutely horrendous, and I'm not a fan of trying to catch a falling knife. That said, if it drops to the low $40s, I believe a lot of value players would come out to support the stock.
By Michael Comeau. In keeping with TSC's editorial policy, Comeau doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Comeau is a research analyst at TheStreet.com. In this role he performs stock analysis for TheStreet.com Breakout Stocks, and is also a regular contributor to RealMoney.com. Prior to his arrival at TSC in June 2004, Comeau worked as a Consultant to Toyota Motor North America, performing in-depth research on automotive industry issues, primarily in the areas of alternative engine technologies, competitive analysis and macroeconomics.
Rate this Article
High
