Why Best Buy, Staples, and ADT Held Back the S&P's 1st-Quarter Gains

These three stocks shrank the S&P's modest rise for the quarter. Find out why.

Mar 30, 2014 at 11:31AM
Longview

2014 has been a challenging year for the stock market so far, but the S&P 500 (SNPINDEX:^GSPC) has at least managed to post a small gain of about half a percent since the year began. That comes despite the fact that Best Buy (NYSE:BBY), Staples (NASDAQ:SPLS), and ADT (NYSE:ADT) have all plunged during the first quarter of 2014, posting declines of more than 25% and helping to prevent the S&P 500 from enjoying better overall performance.

Bby

Best Buy dropped 34%, with nearly all of the electronics retailer's losses coming in mid-January after it said that total sales during the key November and December period had fallen 2.6%, leading to a drop of 0.9% in domestic same-store sales. Even though online sales climbed 23.5% from the previous year's levels, the need for huge promotional activity in a highly competitive electronics-retail environment led investors to near-panic about Best Buy's future prospects. Perhaps more importantly, after such a huge run-up during 2013, anything short of perfection was enough to send shares tumbling. So far, Best Buy has done a good job of sustaining its share price at current lower levels, but it also hasn't made much progress in signaling efforts to boost shareholder returns either.

Similarly, Staples fell 28% after its early March earnings report, in which the office-supply retailer said that same-store sales fell 7%, producing a 4% revenue decline even after closing more than 100 store locations. With customer traffic having declines substantially, Staples has had to respond with even more cost-cutting measures, including further imminent store closures to cut 225 more locations. The big question is whether Staples can see the same success as Best Buy in boosting online sales, where it really needs to excel in order to make up for lost revenue from declining store counts. That's a tall order given the competitive situation online, but it also represents the company's best bet in the long run.

ADT declined 26% as the home-security specialist faced growth concerns of its own. Even though sales rose 4%, ADT's fiscal first-quarter earnings per share dropped 11%, as weaker margins reflected more competitive conditions in the market. As cable companies and other providers seek to use Internet-based home-monitoring systems to compete against ADT's core products, the need for ADT to introduce forward-looking initiatives that have a competitive moat becomes even more critical. Yet ADT has enough debt to make it difficult to maneuver effectively, and distractions like ill-advised share repurchases have arguably taken ADT's focus off rebuilding its customer base.

Even though these stocks are only three out of 500 S&P members, their future could have a defining role in the direction for the entire stock market. In particular, given their high profile status, Best Buy and Staples need to demonstrate their ability to rebound in order to reassure investors that their problems won't ripple throughout the key retail sector and affect the entire U.S. economy.

3 stocks poised to be multibaggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multibagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of Staples. Try any of our Foolish newsletter services free for 30 days. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers