Best Buy Is Testing Support; Buy Signals Exist

Nov.21.13 | About: Best Buy (BBY)

By Neal Rau

Best Buy Co., Inc. (BBY) has new partnerships with Samsung and Microsoft Corporation (MSFT) to open in-store kiosks, and implementing a new training program to help employees to provide better service. The company continues to benefit from cost cutting, as it was able to save $400 million on selling, general and administrative expenses, and $325 million on costs of goods sold, but is the stock a buy, sell or hold after the recent pullback?

Best Buy shares have fallen 12% from the recent yearly highs after the company gave cautious guidance ahead of the holidays. The company will have to offer competitive pricing while maintaining decent margins in a very competitive holiday environment. Cost-cutting and new in-store Kiosk will be key factors to help the big-box retailer offset potential soft margins.

Kiosk deals with Microsoft and Samsung are in place to help with deal with showrooming, which is where customers view products in stores but buy them cheaper online at sites like Amazon.com. Online sales were up last quarter by 15%, thanks to an updated website with the addition of customer reviews. Best Buy also has begun to fulfill online orders using inventory from stores. Best Buy's stock has easily outperformed its competitors this year. Right now, based on the BBY real-time trading report published by Stock Traders Daily, BBY is testing long-term support after the post-earnings decline.

Competing on price with competitors like Target Corporation (TGT) , Wal-Mart Stores, Inc. (WMT) Amazon.com, Inc. (AMZN) will be a major challenge this holiday season. Competitors decisions to open early for Black Friday, where stores will be open at 6:00 pm on Thanksgiving Day and not closing until late evening on Black Friday, must be matched.

The gap between Best Buy and Amazon on TVs narrowed to 2%, the smallest gap in over a year. This development is very important, as the company needs to match Amazon on price and stem the tide of share loss, albeit at a lower gross margin. Best Buy has further cost cutting opportunities to offset the lower gross margins to drive EPS gains going forward. More competitive pricing, helps to reduce showrooming at the retail level, and combined with more efficient supply chain management, helps BBY take share online as well

The company said in the most recent conference call, that if competition is in fact more promotional in the fourth quarter, it will be too and that will have a negative impact on the gross margin. Investors will have to determine if that news is already built into the stock price, and if cost-cutting strategies coupled with in store kiosks will be enough to offset reduced margins. Smart money will be watching the price of the stock now, as the most of the market moving fundamental news is already out.

Price is what makes us money, based on the our real-time trading report, BBY is testing long-term support, and according to the rules that govern our strategies, we are buyers near support. If support holds, we would expect shares to move higher and eventually test resistance. We would only be buyers near support, and use that support level to set our stop loss.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: By Neal Rau for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.