Cramer: These Retailers are Value Traps

Cramer's Says Time to Sell : BBY, RSH, HGG

Mad Money's Cramer says it's time to sell Best Buy, Radio Shack, and HH Gregg, because these brick and motar electronic stocks have fallen into long term secular decline, and that means they could still go a lot lower.

HHGregg, Best Buy and RadioShack have all fallen dramatically this year, but that doesn’t mean these stocks are a bargain, “Mad Money” host Jim Cramer said Thursday. In fact, he thinks they are all broken companies.

“These three electronics merchants have fairly different profiles, but they all have their own problems,” Cramer said, “and worse, they're all part of an industry that's in long-term secular decline … courtesy of low-priced competition from Internet based retailers like Amazon that are pantsing the bricks and mortar guys.”

While there are bull cases for each name, he doesn’t think any of them hold water.

For instance, HHGregg plans to add 20 to 25 new locations next year and its last quarter came in better than expected. However, he said if the fundamentals of the industry are declining, new stores won’t help. And the results from last quarter weren’t all rosy—their margins were worst than expected and its same-store sales growth was “anemic.”

The bulls have pointed to Best Buy’s cash flows, but Cramer said the company has been “squandering” most of its cash on buy backs that haven’t worked and its quarters keep disappointing. There is also a lot that can go wrong. Best Buy normally trades off of same-store sales numbers and margins, and Cramer thinks Best Buy just can’t compete with online retailers.

RadioShack has been trying to restructure its business with more of a focus on mobile devices and doubled its dividend. However, it’s not known if the restructuring will work, Cramer said. In the meantime, there are several problems with the company. It faces “vicious” competition and every key metric last quarter came in under expectations. And while the company is trying to turn itself around with smartphones, its other products are being crushed.

When you analyze the valuations, none of these stocks are cheap, Cramer said.

“Best Buy, Radio Shack and HHGregg have all been slammed this year, but they deserved to be slammed,” he said “They are value traps, destined to look cheap forever, luring you toward them, only to have you be disappointed time and time again.”

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