Why the S&P 500 Is Thrashing Best Buy and GameStop

Of the 25 worst performing stocks on the S&P 500, a surprising number are retail companies including Best Buy and GameStop.

Apr 13, 2014 at 3:00PM


Take one look at the worst performing stocks on the S&P 500 (SNPINDEX:^GSPC) this year, and you can't help but notice how many retailers are among the index's biggest laggards. Most notably, Best Buy (NYSE:BBY) and GameStop (NYSE:GME) come in near the top (or bottom?) of the list.

On a superficial level, the reason shares in these companies are performing so poorly boils down to one thing: a dismal holiday shopping season. As you can see in the following chart, both stocks fell off a proverbial cliff in the middle of January.

BBY Chart

GameStop's decent began on Jan. 14, when the company announced a "greater than expected" decline in video gain sales. According to its press release at the time, Xbox 360 and PlayStation 3 sales dropped by 22.5% on a year-over-year basis. Despite this, CEO Paul Raines touted, "Our outstanding execution during the holidays resulted in GameStop securing the number one market share position in the U.S. and in most of the countries in which we operate today."

Meanwhile, Best Buy reported a similar lackluster performance on Jan. 16. Domestic same-store sales at the electronics giant dropped by 0.9% during the holiday season. "When we entered the holiday season, we said that price competitiveness was table stakes and an intensely promotional holiday season is what unfolded," said CEO Hubert Joly.

Needless to say, neither company has been able to recover from the resulting precipitous drops. As of Friday, Best Buy is the absolute worst performer on the S&P 500 this year thanks to a 36% decline, while GameStop's 17.7% drop has led it to underperform 482 of the index's 500 components. By contrast, even after last week's slaughter, the S&P 500 itself is only marginally lower for the year.

What does this mean for the two companies going forward? Beyond the most recent holiday shopping season, these companies' prospects simply aren't bright. Best Buy continues to experience acute price competition from online retailers like Amazon.com and big-box discounters such as Costco, neither of which is likely to let up anytime soon. And GameStop recently learned that Wal-Mart has entered one of its most hallowed markets: selling used video games.

The net result is that both companies appear to be dead in the water in terms of their businesses and, for the same reason, as investments.

3 stocks to own for the rest of your life
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

John Maxfield has no position in any stocks mentioned. The Motley Fool owns shares of GameStop. 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.

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.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information