Best Buy (NYSE:BBY) is in a tight spot, with a lot hanging in the balance. The retailer is trying to regain some of the 2013 it lost after a disappointing holiday season. First-quarter results were cause for minor celebration, but the stock is still down 30% from the beginning of 2014.

Since its massive fall, the stock has crawled back a mere 4%. Investors continue to see Best Buy as a second-rate (NASDAQ:AMZN) and a relic of the big-box era. In the meantime, Best Buy is trying to diversify its offerings in order to take advantage of its few clear strengths.

Where Best Buy went right
This is the "some things are going well" section, but let's be clear from the start: Best Buy is not killing it. In 2011, Best Buy was already looking weak but managed to pull in a 25% gross margin. Last year, it fell just shy of 23%. Total revenue is down, earnings per share are down, and you wouldn't necessarily be wrong to think that Best Buy is still bad news. For a rundown of all the bad things going on, check out this piece from The Motley Fool's very own Adam Levine-Weinberg.

Still here? OK, here's what Best Buy is doing to make investors hopeful. Best Buy has two major strengths and, unsurprisingly, these are products that people aren't buying online as much. First, Best Buy has been growing its mobile phone division through its regular stores and its Best Buy Mobile locations. Computing and mobile accounted for almost 50% of total revenue last quarter, although sales rose only slightly due to consumer expectations about better phones being released later in the year.

The other items people don't often buy online are massive appliances. Best Buy's appliance category grew comparable-store sales by 9% last quarter, which was on top of a 12% increase in the first quarter last year. Appliance sales now account for 7% of Best Buy's total sales in the U.S., up slightly since 2011.

Where Best Buy can still stumble
If Best Buy is having good luck with its appliances and mobile divisions, it's still facing hard times when it comes to consumer electronics. Amazon has started to eat Best Buy's lunch on items that people don't care about not seeing in person before they buy. Amazon also keeps pushing out the boat on showrooming, using its shopping app to allow customers to take pictures of items in a store and to then find them cheaper on Amazon.

Best Buy's weak spots are real, and as Adam pointed out, the company is experiencing operating margin pressure as it tries to become more competitive on pricing. The upside here is that Best Buy is making headway in its stronger categories and there seems to be a long way for those businesses to run. In the long run, Best Buy is going to have to cut back on its big-box costs, but if it can do that, the skies should clear and leave investors basking in the big blue sunshine.

The upside to cable's demise
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 


Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends and owns shares of 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.

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