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Why Best Buy May Be the Worst Play at Christmas

The Exchange

If history holds, Abercrombie & Fitch (ANF) is about to salvage at least some of its forgettable year for investors, while Best Buy's (BBY) magical turnaround is set to take a hit.

For Abercrombie, the past few months have been marked by weak sales and bad publicity, the latter led by years-old remarks from the company's CEO in which he noted a clear preference that his clothes' buyers be trim and attractive. Meanwhile, Best Buy has seen a rebirth, thanks to a new focus on stores that's designed to brighten up your TV-and-speakers shopping experience.

That's paid off for Best Buy's shares, which have bolted ahead by a whopping 226.7%, making the stock the second-best performer in the S&P 500 so far for 2013. Going the opposite way is Abercrombie, having slumped 27.1%.

But have we arrived at reversal time? Over the past 10 years, going long the teen-apparel merchant has reaped an average gain of 5.8% during the annual holiday shopping spree, a move that, if repeated in 2013, would mean a little cheer is coming for stockholders sitting on a sizable year-to-date loss. At the same time, the big electronics chain was best-played on the short side 80% of the time.

Those are among the findings of our survey as to how a group of well-known retail shares have fared each year over the past decade amid the gift-buying surge, measured here from the beginning of Thanksgiving week to the last trading day before Christmas. To see how the sector actually performs in the market amid the overcrowded malls and cyber-purchasing, we started with the 10 biggest retailers by total revenue in the S&P 500.

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We left out grocery stores such as Kroger (KR) and drugstores including Walgreen (WAG), but added on Abercrombie, knowing it was historically strong, and GameStop (GME), owing to the fact that it's a popular option for year-end presents.

Here's how it's played out:

And the upside winner is, by a nose, Abercrombie & Fitch. From 2003 to 2012, the flannel purveyor led the group of 12 stocks examined with an average advance of 5.8%. Only twice did it fail to climb in shopping season, most recently in 2009. Barely trailing it is Amazon.com (AMZN), the online seller of just about everything, with an increase of 5.7% a year. Like Abercrombie, it has had only two down years in the past decade.

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The ugliest showing comes from Best Buy, which has fallen in eight of the years we looked at, pulling back an average of 4.1%. That makes it by far the worst performer, with T.J. Maxx owner TJX Cos. (TJX) recording the second-biggest drop, at 0.6% a year. Wal-Mart (WMT) has slipped an average of 0.02%, giving it essentially a break-even performance, on balance. However, the retailer, the biggest in the world, with revenue of almost $470 billion in 2012, has recorded seven declines in the prior 10 holiday periods. Macy's (M) also has seven years when its stock has decreased, but its average is propped up by a giant 34.5% gain in the 2008 shopping season. As a result, it registers a typical boost of 1.5% (and pointing to a shortcoming with averages).

Interestingly, that year, despite coming only weeks after the Lehman Brothers collapse and Wall Street meltdown, also happens to be the strongest for the group overall, when the dozen retailers surged an average of 12.9%. By comparison, the S&P rose 1.9% over the course of the holiday month. The single-worst year was 2003, when 10 of the 12 lost ground, with only warehouse owner Costco (COST) and Amazon escaping the 6.3% selloff. All told, five years have been up for the stocks taken together, and five have been down. Of the individual stocks, only Home Depot (HD) has an even split of up and down years.

Best Buy, along with being the laggard, has the longest streak of down years, now at four. (In one of those, 2010, it recorded the steepest slide of any isolated period we charted, giving back 23.4%.) Home-improvement goods seller Lowe's (LOW) can boast six straight wins, having not fallen since the 2006 shopping year.

Do you like any of these findings to influence your thinking this year? Who are you expecting to be the winners and losers for the 2013 holidays?