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Is Best Buy A Value Trap?

While it may feel like a value opportunity, Bernstein’s Colin McGranahan says Best Buy is more likely a value trap.

“While quite cheap versus history and versus retail, this feels much more like a potential value trap than an undiscovered value opportunity to us, and we remain sidelined,” he wrote in a note to clients.

Fast Money was so intrigued by his call that we invited him to joins us for a live interview.

He tells us, that among his chief concerns is that Best Buy operates in a segment in which most growth is happening online. In other words, as a brick and mortar Best Buy is at a disadvantage.

He also tells us the quarter doesn't look like its shaping up well for Best Buy with sales slipping and margins coming under pressure. "I thought it was an awful quarter... I'm concerned," he says.

Of course it takes two sides to make a trade and some members of the Fast Money gang find a long position in Best Buy attractive.

What's the trade?

I’m holding the stock, says Joe Terranova, because I think Best Buy is a 4th quarter story. I like it going into back to school and then Christmas.

I’m a buyer if the stock breaks $33 and I’d hold it until Black Friday, says Jon Najarian.

* Fast Money EP John Melloy writes about the value trap phenomenon at length in his daily post. Click here to read Beware Value Traps When ‘Everything’ is Cheap

You can find our interview with Colin McGranahan at the end of the Word on the Street video.




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Trader disclosure: On July 27, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Grasso owns (ASTM), (ABK), (BAC), (BA), (BGP), (C), (CSCO), (DYN), (JPM), (LPX), (MO), (NDAQ), (PFE), (PRST); Kelly owns (BP) puts; Jon Najarian owns (AAPL) call spreads; Jon Najarian is long and short (BIIB) calls; Jon Najarian is long and short (MSFT) calls; Jon Najarian owns (SNDK) and is short calls; Terranova owns (AMZN), (EMC), (CREE), (BRCM), (LRCX), (COP), (AXP), (BMO), (CSX), (PEP), (CVS), (GS), (PCP), (C), (APA), (FCX), (JOYG), (MMM), (MOS), (UAUA), (WYNN), (GOOG), (BBY), (SU), (KOL), (XBI), (SWN), (BAX), (JNPR); Terranova is short (GLD)

For Steve Grasso:
Stuart Frankel & Co and it’s partners own (BAX)
Stuart Frankel & Co and it’s partners own (COG)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (DHR)
Stuart Frankel & Co and it’s partners own (DYN)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (IP)
Stuart Frankel & Co and it’s partners own (MERC)
Stuart Frankel & Co and it’s partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PDE)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (RDC)
Stuart Frankel & Co and it’s partners own (SYMC)
Stuart Frankel & Co and it’s partners own (TBT)
Stuart Frankel & Co and it’s partners own (TLM)
Stuart Frankel & Co and it’s partners own (TRV)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners are short (QQQQ)

For Joe Terranova
Terranova works for (VRTS)
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners owns more than 1% of (CASS)
Virtus Investment Partners owns more than 1% of (LDR)
Virtus Investment Partners owns more than 1% of (LPHI)
Virtus Investment Partners owns more than 1% of (MGRC)
Virtus Investment Partners owns more than 1% of (XLB)
Virtus Investment Partners owns more than 1% of (XLP)
Virtus Investment Partners owns more than 1% of (XLY)
Virtus Investment Partners owns more than 1% of (XLI)
Virtus Investment Partners owns more than 1% of (XLK)
Virtus Investment Partners owns more than 1% of (XLU)
Virtus Investment Partners owns more than 1% of (SUBK)
Virtus Investment Partners owns more than 1% of (WDFC)
Virtus Investment Partners owns more than 1% of (YDNT)
Virtus Investment Partners owns more than 1% of (DRYS)

For Brian Kelly
Accounts managed by Kanundrum Capital own (UNG)
Accounts managed by Kanundrum Capital own (BAK)
Accounts managed by Kanundrum Capital own (ORI)
Accounts managed by Kanundrum Capital own (VIV)
Accounts managed by Kanundrum Capital own (XLF)
Accounts managed by Kanundrum Capital own (GME)
Accounts managed by Kanundrum Capital own (OIH)
Accounts managed by Kanundrum Capital owns Euros
Accounts managed by Kanundrum Capital owns Australian Dollars
Accounts managed by Kanundrum Capital own (TBT)
Accounts managed by Kanundrum Capital own (AAPL) calls
Accounts managed by Kanundrum Capital are short (GLD)
Accounts managed by Kanundrum Capital are short the Yen
Accounts managed by Kanundrum Capital are short the US Dollars

For Paul Sankey
(XOM), (COP), (CVX), (VLO) is an investment banking client of Deutsche Bank
Deutsche Bank received non-investment banking compensation from (XOM), (COP), (CVX), (OXY) (VLO) in the past year.
Deutsche Bank provided non-investment banking securities related services to (XOM), (COP), (CVX), (OXY) (VLO) in the past year.
Deutsche Bank owns 1% or more of (VLO), (COP) of any class of common equity securities.

For Dr. Mark Schoenebaum
ISI seeks to do business with (AMGN), (GILD), (GENZ), (BIIB), (VRTX), (HGSI), (UTHR), (AMLN), (ACOR) and has received non-investment banking compensation in the past 12 months.

For Colin McGranahan:
Colin McGranahan maintains long positions in Kohl's Corp. (KSS), Amazon (AMZN), Ross Stores Inc. (ROST), Safeway Inc. (SWY) and Gap Inc. (GPS)
Bernstein or an affiliate expects to receive or intends to seek compensation for investment banking services from BBY

Scott Nations
***No Disclosures***


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