Can Best Buy, Conn's, and hhgregg Bounce Back?

Best Buy and Conn's follow hhgregg lower in January.

Feb 3, 2014 at 9:50AM

Last week was a rough one for consumer electronics retailers. One of the market's biggest losers was hhgregg (NYSE:HGG), tumbling 26% after posting uninspiring financials. Conn's (NASDAQ:CONN) and Best Buy (NYSE:BBY) tumbled 13% and 6%, respectively, in sympathy.

RadioShack (NYSE:RSHCQ) bucked the trend by closing slightly higher, but consumer electronics was a disaster for investors in January. This may have been a hot retailing niche for investors in 2013, but it's been a different story for these chains in 2014.

Company 20132014
Best Buy 237% (41%)
Conn's 157% (23%)
hhgregg 99% (41%)
RadioShack 23% (8%)

Source: Yahoo! Finance.

The contrast is huge. The four stocks that average a gain of 129% last year are off by an average of 28% through just the first month of 2014. The difference becomes even more pronounced if you eliminate RadioShack from the mix.

Last week's downdraft was the handiwork of hhgregg's disappointing quarterly results, and it was pretty bad. Posting an 11.2% plunge in comps -- with its consumer electronics, computing, and wireless categories falling even harder -- is naturally not going to wind up as a victory for the bulls. It doesn't even seem to matter that hhgregg had already warned about falling short earlier in the month. Investors still weren't prepared for the negative implications, and that became clear when Standpoint Research upgraded the stock -- from hold to buy -- a week earlier. 

That's bad timing, but it wasn't just hhgregg that tipped the market off on the retailing niche's woes. Best Buy also took a big hit earlier in the month when it posted results for the holiday quarter that exposed the superstore chain's margin-squeezing strategy. Best Buy's sales may have held up better than hhgregg, but it came at the expense of profit margins as it was forced to price its wares aggressively to close sales.

Last year was full of promise. The housing boom was helping Best Buy, Conn's, and hhgregg with brisk appliance and furniture sales. However, Best Buy in particular is a concept built around loyal customers making several repeat purchases. That just doesn't happen with a fridge or a sofa that will last for years. Best Buy relies on low-priced media sales to keep customers coming back, and those items are migrating to digital delivery.

The stocks ran too high last year, and a cruel reality adjustment is taking place at the moment. The market will need to see fundamentals improve, and the January reports don't seem to suggest that salvation on that front is coming anytime soon.

Retail's changing ways aren't just bad for consumer electronics chains
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Rick Munarriz has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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