Best Buy Induces Ridiculous Consumer Discretionary Rally

That’s when the market took off – [S&P] futures went from 814 to 822. When they think the consumer is completely dead, and Best Buy blows out earnings, even if a lot of it is lowered prices on things, the consumer is obviously not dead.

- Dave Rovelli, managing director in trading at Canaccord Adams

Best Buy (BBY) this morning reported a better than expected 4th quarter. Adjusted net income was down 7.5% to $682 million and EPS was down 10 cents to $1.61. But that still blew away analyst estimates for $1.38. They also forecast earnings of $2.50-$2.90 for fiscal 2010 - above analysts' estimates of $2.47. As a result, the stock is off to the races - up 12% on the biggest volume in about 2 years.

But it’s getting ridiculous. The stock has now more than doubled from its Nov. 21 closing low ($17.63) to trade over $37 a share. Even if they hit the mid-range of their forward earnings target ($2.70), the stock is now trading for 14 times forward earnings - no bargain in a bear market.

Investors appear to have lost sight of the fact that US same store sales were still off 4.8%. The fundamentals for selling discretionary items are still terrible.

Anyways, this report has lit a fire under consumer discretionary companies. Here are some examples:

Target (TGT) +5%

Home Depot (HD) +3%

Lowe’s (LOW) +4%

Nordstrom’s (JWN) +7%

Macy’s (M) +9%

Brinker International (EAT - owner of Chili’s and Macaroni Grill) +8%

Starbucks (SBUX) +7%

This is way overdone. I’ve been trying to get short Amazon (AMZN), Best Buy (BBY) and Starbucks but Scottrade has no available shares to short.

Disclosure: Top Gun has no position in any of the securities mentioned in this article.

Comments

[captainccs:]

Shorting at the bottom of the market?

Mar 27 09:22 AM

[drummerboy:]

use put options or put spreads.

Mar 29 04:20 PM

[p2i:]

Shorts always think that upside rallies are always overdone. In reality the bear market took great companies down too far. Short at the market's bottom at your own risk.

Mar 31 11:46 AM