Best Buy Induces Ridiculous Consumer Discretionary Rally

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Includes: AMZN, BBY, EAT, FXD, HD, IPD, JWN, LOW, M, PEZ, RCD, RXI, SBUX, TGT, VCR, XLY
by: Greg Feirman

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 (NYSE: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 (NYSE:TGT) +5%

Home Depot (NYSE:HD) +3%

Lowe’s (NYSE:LOW) +4%

Nordstrom’s (NYSE:JWN) +7%

Macy’s (NYSE:M) +9%

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

Starbucks (NASDAQ:SBUX) +7%

This is way overdone. I’ve been trying to get short Amazon (NASDAQ: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.