The Exchange

Hold the Obit: Best Buy's Not Dead Yet

The Exchange
Peter Schultz helps stack a pallet of Xbox One game sets for a doorbuster sale at a Best Buy store just before midnight on Thanksgiving Day, Thursday, Nov. 28, 2013, in Dunwoody, Ga. All of the store's 120 employees were on hand to ring up items after the electronics retailer opened on Thanksgiving this year. (AP Photo/David Tulis)
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Peter Schultz helps stack a pallet of Xbox One game sets for a doorbuster sale at a Best Buy store just before midnight on Thanksgiving Day, Thursday, Nov. 28, 2013, in Dunwoody, Ga. All of the store's 120 employees were on hand to ring up items after the electronics retailer opened on Thanksgiving this year. (AP Photo/David Tulis)

Every year the stock market has its share of turnarounds, and in 2013 a host of household names made notable comebacks. The most unlikely might well have been a Richfield, Minn.-based consumer-electronics seller that investors had left for dead, in a roadside ditch, like so many other defeated American retail giants.

It's Best Buy (BBY), the owner of those sprawling stores carrying TVs, computers, video games and stereo systems. A year ago, its obituary was written. It was a victim of the showrooming phenomenon in which shoppers would check out products on its shelves, then head home and purchase them online at Amazon.com (AMZN).

But instead of falling limply from the fray as the Jeff Bezos war machine invaded, Best Buy decided it had some fight left in it. The reward for investors has been tremendous they've got the No. 2 performing stock in the S&P 500 for the past 11-plus months, one that's posted a massive increase of around 255% to $41.61 following a three-year losing streak.

With a rededication to stores, including markdown areas, interactive sections and items well-placed for impulse buys, shoppers are demonstrating they'll walk away with actual goods. After two years of losses, it's on track for an $869 million profit instead of making like the next Circuit City. As a result, we're naming Best Buy our comeback stock of 2013. 

Not everything has been perfect, however. There are legitimate concerns its profit margins will suffer as it strives to compete, and these likely will remain. Its earnings multiple is running extremely high, making it expensive compared with its historical levels. With a forward price-to-earnings ratio of 14.7, that's 48% above the five-year average.

Success, at the checkout and in the market, has to be re-earned over and over, and skeptics have a point in noting that simply holding the line on sales won't forever justify the lofty level Best Buy has attained. Although same-store sales were positive in the third quarter, a rarity of late, they barely were so.

Recently, we expressed concern about the stock's potential to keep up the pace during the holidays, owing to its history of pullbacks in the busiest shopping time of the year. Thus far though, it's all systems go, with a 5.1% improvement since Thanksgiving week. More importantly, still new-ish chief Hubert Joly and his company earn kudos for preventing a collapse this year, and it's this year that's the focus for the moment.

It wasn't the only market reversal or major improvement, at least that warrants mentioning (we stuck with the S&P). Several members deserve calling out, including a number that hit record highs. Not entirely a surprise there, considering the index did the same, continuing its multiyear rally. Here are some of the individual standouts:

Chipotle Mexican Grill (CMG): How is a high-flier that's up more than 1,100% since its 2006 debut a comeback story? Bounce back from an annual loss of 12% with a jump of 71.8%. That's about 45 percentage points better than the S&P 500's 25% lift. Denver-based Chipotle upgraded same-store sales estimates a couple of times in recent months, and overall revenue is likely to rise 17.1% to $3.2 billion this year. The stock hit an all-time high of $550.28 in November.

Hewlett-Packard (HPQ): In 2010 the Palo Alto, Calif., technology pioneer saw its shares drop 18.3%. The next year, they lost 38.8%. Last year it was a 44.7% slump. Zero, here we come. Hold it. Under CEO Meg Whitman, HP finally might be finding its footing, at least as far as the market is concerned. The company's restructuring hasn't always been kind, considering nearly 30,000 workers have been let go, but the truth is investors like cost cuts, not charities. This year, shares of HP bounded 88.3% to above $28. The bad news is they're still 60% below their 2000 peak above $67.

Microsoft (MSFT): Another tech laggard over the past three years hails from Redmond, Wash.: Down 8.4%, off 7%, up 2.9%. This year, Windows-owner Microsoft poured it on, adding 35.5% to a current price above $36. Headlines included a deal for Nokia's (NOK) phone and tablets and long-time CEO Steve Ballmer stepping down. Still, it's a ways from its Internet-era glory. Shares are some 39% below the 1999 top.

H&R Block (HRB): Under eBay (EBAY) veteran Bill Cobb, who joined as CEO in May 2011, H&R Block has shed riskier non-core mortgage and brokerage units to focus on its industry-leading tax-preparation business. In 2013, the Kansas City company gained market share, boosted its dividend and stock buybacks, moved to part with its remaining bank subsidiary and began positioning to help clients navigate the often confusing new health-insurance marketplace. Shares, up 52.1% this year, reached a record close of $31.99 in August.

Boeing (BA): Boeing in fact has risen in the prior four years, but the rate of expansion had fallen each time. In 2012 it eked out a 2.7% increase. This year it popped 77%, a gigantic move for the stock. It wasn't always smooth – Dreamliner battery problems and revenue worries hit the company, and the stock, at the start of the year – but improved financial views and ongoing airplane orders helped shares record their best-ever close of $138.36 in November. Only days ago, the Chicago-based company hiked its buyback and dividend.

Netflix (NFLX): The leader of them all on the S&P in 2013. For this Los Gatos, Calif., company, its comeback from the depths actually began late last year, and it finished '12 with a 33.6% gain, but that accelerated when the calendar turned. Since Dec. 31, Netflix has charged higher by 303.9%, thanks to new subscribers and hit shows. It even made history at this year's Primetime Emmys, when its original offering "House of Cards" won three statues – the first time ever for a Web-only series. It's currently trading at around $377, above its closing high of $376.24 reached Wednesday.

A few other rebounders:

  • Electronic Arts (EA): The video game developer was down 29.5% in 2012, before turning up 57.4% this year, to above $23.
  • Safeway (SWY): A 14% loss last year at the supermarket owner preceded an 80.9% advance, to a current price above $32, for this one.
  • Goodyear (GT): The tire maker overcame last year's 2.5% setback with a 64.2% climb in 2013; it's currently trading at $22.56.
  • Tiffany (TIF): It was rags to riches at the jewelry chain, which had a 13.5% decline in 2012 and a 58.9% rise this year. Shares are trading at above $90 on Thursday.
  • Micron Technology (MU): One of the top three stocks in the S&P, the electronics memory developer added 0.8% last year. This year, it's surged 242.9%. The stock is currently trading at close to $22.

 

Senior columnist Michael Santoli contributed to this article.

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