Is Best Buy Stock a Buy?

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Best Buy reports earnings next week on Tuesday 11/23/21. Is Best Buy stock a buy before earnings?

As you can tell from the subheading, there is a lot of uncertainty around buying Best Buy stock here. Don’t get me wrong. Best Buy is doing really well. Sales are up. Some of that is from the pandemic. If you’re going to be stuck in your house you want a bigger TV, better speakers, a new Nintendo Switch, an Oculus VR headset. You get the idea. But, Wall Street is not stupid. They know that about Best Buy’s sales and it is all baked into expectations for the retailer.

However, here is where it gets interesting. According to the Best Buy stock quote page on Yahoo Finance, the consensus projected earnings for Best Buy to report in Q4 is the same as it was for last quarter at 1.85 per share. Last quarter, Best Buy shattered that expectation by reporting 2.98 per share. So, where does that put us?

best buy stock

There is the possibility that Best Buy and its upper management are strict, straight-arrow, by the books executives. On the other hand, there is the possibility that Best Buy’s executives are just a little bit interested in putting the best face forward on the company, and in doing so, maybe let a couple of good things slide into the next quarter since they already had blockbuster earnings to report. If so, then that padding could cushion any downturn in sales. Throw in the fact that there is no reason to expect that Best Buy sales dropped a lot. So, unless Best Buy expenses increased dramatically, the quarter will very likely “surprise” on the upside.

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I’m just a guy sitting in his basement home office looking at free stock charts, and if this is that obvious to me, then it’s that obvious to a lot of people. Here is the catch. If the upside surprise is not big enough, this stock will fall, even though it technically beat the consensus earnings for Best Buy stock. So, if you want in, you have to be willing to take the drop.

Is Best Buy Stock a Good Investment?

I’m not a day trader. I’m not looking to earn a couple bucks on a Best Buy price increase. I’m also not afraid to lose a couple of bucks on a company paying a solid dividend, and that has little to no chance of missing bond payments or going bankrupt at this time, assuming no accounting fraud.

Like I’ve always said. I invest in stocks like they were bonds. Best Buy stock looks like a nice “bond” right here. The annual dividend yield is 2.06% today. So, if we want in to Best Buy, we want in now since the most likely result is a stock price increase around the 23rd. A price rally pushes our dividend prospects down, and at 2.06%, it’s just barely over 2% as it is. As always, a lot can happen between now and then, and there is no guarantee that Best Buy stock is a sell for many after the earning report. But, as a bond, we aren’t interested in the principal right now, only the dividend. Is Best Buy a buy? Is 2.06% good enough for your portfolio?

The Best Buy Stock Pop Possibility

If you’ve followed me for very long you know that I don’t write up every 2%-ish yielding stock out there. So, what gives? (I mean McDonald’s has a 2.2% yield…)

There is a very real possibility that Best Buy stock will catch a bit of a frenzy pop after earnings. If so, there may be an opportunity to sell for short-term capital gains. As always, I don’t like short-term investing, it is too tricky unless you are willing to spend all day glued to the screens. But, since I like Best Buy as a buy-and-hold to reap the dividend, there is the opportunity to get the best of both worlds. If Best Buy does pop, we sell and take that short-term capital gain. If it doesn’t we shrug our shoulders and enjoy our dividend while waiting for the price to eventually recover.

The Santa Claus Rally and The New Year

There are two more things to fully understand before we take a shot at Best Buy. First, retailers, and stocks in general, often benefit from a so-called Santa Claus Rally as the year ends. Assuming BBY does well and there is a Santa Claus rally that carries it even higher, there is the potential for significant capital gains before year end. BUT, and this is a very big BUT, if there is any hint that holiday shopping is weak this year, expect retailers like Best Buy to take a significant hit.

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With the New Year will come company earnings that will show how retailers did during the holidays. Again this may swing BBY up or down depending upon how it hits.

So, final answer:

I like Best Buy here. I will buy it for my portfolio. — As always this is not a recommendation to buy or sell stocks. I don’t do that. This is my thinking, and I’m grabbing some BBY here. Do your own thinking, and make your own decision.

Author – Brian Nelson

Brian is a former Certified Financial Planner and financial advisor. He writes for the Finance Gourmet and other financial publications. The material provided on this website is for informational use only and is not intended as financial or investment advice. At the time of publication, Mr. Nelson owned shares of BBY, however, that may change at any time without notice. ArcticLlama, LLC, FinanceGourmet.com, and Brian Nelson, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.

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