Seeking Alpha
Profile| Send Message|
( followers)  

Best Buy (NYSE:BBY) has been beaten down lately but could be providing traders a great opportunity to profit going into the fourth quarter. After Best Buy's most recent quarter, many investors are starting to question Best Buy's ability to generate profits during such a tough economic environment.

Here are some points I like about Best Buy:

  • Continued international expansion will be a driver of future earnings. Best Buy opened an additional 7 stores in China, taking its total store count to 178. Best Buy saw these stores perform extremely well delivering 7% comps and increased margins.
  • Launch of Best Buy Marketplace will allow the company to increase the amount of product offerings without having to invest in inventory. The Best Buy Marketplace allows third party retailers to offer thousands of additional products at various price points. Best Buy expects the new service to double domestic online revenue in 3 to 5 years.
  • Mobile devices continue to be a strength driving sales growth. Best Buy saw better than expected sales of the iPad. The company also saw strong sales of Android devices. I expect the wireless business to perform extremely well going into the fourth quarter. Launch of the iPhone 5 will spell big profits for Best Buy in the fourth quarter.

I expect Best Buy to exceed investors expectations going into the end of the year. This shouldn't be too difficult since the company lowered its full year forecast. Many analysts are concerned about the current economic environment and growing pricing pressures.

I'm taking the longer term view and expect many of Best Buy's initiatives to build strong value for investors. I like pullbacks in strong cyclical stocks like Best Buy because they are great opportunities to build a position. I'm bullish on Best Buy and I view pullbacks as buyable. I'm looking at this as just a trade and will look to take profits once I hit my target. I expect to get at least 12% on my trade which would get us back to around the $28 area. I have a big target of 20% which would get us to around the $30 area.

I'm looking to take advantage of the run up going into the fourth quarter sales numbers. Look at the weekly chart and see how Best Buy performed in previous normal market environments going into the fourth quarter. The exception was the financial crisis in 2009 which saw the rally start in November instead of September.


(Click to enlarge)

Source: Best Buy Is The Best Buy Of The Year