Talking Numbers

Why Best Buy continues to defy critics

Best Buy continues to defy critics

It was one of the worst. Then it was one of the best. Now it's back to being one of the worst.

Best Buy was one of the bottom stocks in the benchmark S&P index back in 2012, losing 49% of its value. Then last year the stock shot up an incredible 239%. This year, it's back to being shockingly miserable; since the start of 2014, Best Buy has tumbled 37%, making it the worst performing stock in the index. It currently trades just above $25 per share.

So, if you put your money in Best Buy on January 1, 2012, you would have only a 7% return but a lot of heartburn and adrenaline along the way. The S&P 500 index is up a steady 43% during that same time period.

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However, Mark Newton, Chief Technical Strategist at Greywolf Execution Partners, believes the technicals are signaling a buy for the stock.

"Technically, Best Buy is starting to look very attractive here, at least in the near-term," says Newton. "The stock actually retraced about 50% of its absolute highs back in November. So, for technical purposes, $22 is a rock-solid level of support."

"The stock likely could get back to $28, which is the former high that it hit when it gapped down," says Newton. "It's gone from best case to worst case. My thinking is the worst is behind this, at least in the near term, and it's starting to bottom out."

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John Stephenson, portfolio manager at First Asset Investment Management, agrees with Newton that Best Buy has upside ahead despite its recent stumbles.

"Admittedly, the last quarter was dismal but it wasn't all that bad," says Stephenson. "But, the reality of the stock is this is a really cheap stock."

Best Buy currently trades at about 12 times the next four quarters' earnings, versus the overall S&P 500 index's 15 times earnings. Stephenson sees opportunities for better results from should the company improve its delivery time, update its website, cut sales and administrative costs, and sell off its Five Star appliance subsidiary in China.

"This is a company that should be bought," says Stephenson. "It's going higher."

To see the rest of the discussion on Best Buy with Newton on the technicals and Stephenson on the fundamentals, watch the video above.

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