HUGE BUYING opportunity on Best Buy (BBY) for a move up to $150

We've just opened a LONG position on $BBY using 5.38% of our equity.

Fundamental Analysis

Best Buy's (NYSE:BBY) latest earnings report delivered better-than-expected results and signaled that the company’s business remains remarkably strong across all segments. It was expected to spark investors’ interest considering the fact that we usually see an increased demand for the retail stocks heading into the holiday season. Sales trends beat expectations again thanks to strong demand in both the online and in-store channels. What’s even more important is that the profitability of the company increased again despite the rising supply chain costs that the senior management has had to battle with. Both, the company’s CEO – Corie Barry and Best Buy’s CFO – Matt Bilunas confirmed for a 3rd consecutive time this year their positive outlook for the huge growth opportunities ahead for the business.

So you might be wondering - “Well, if the earnings report was so great, why has the stock sold off so dramatically?”. The thing is, it’s normal to be confused as in reality it does not make any sense for the average person. However, as trained market professionals we have the ability to dig deeper and apply a multi-varied analysis to a situation like that in order to find out what is really going on and if the selloff like that is not actually an opportunity in disguise.

What tends to happen very often on Wall Street is – when a certain company continues to deliver better-than expected results and raises its guidance quarter after quarter, then this reaches to a point when analysts, investors, journalists, fund managers etc. become overly bullish on the stock and start placing unrealistic expectations for the future growth of the company. It’s all sunshine and rainbows until these expectations become completely detached by what’s actually possible to be accomplished by the company. At one point the positioning in the stock simply becomes heavily one-sided, and a seemingly good earnings report and/or announcement by the company can become the trigger for a massive selloff in the stock, just because it was not "good enough", even though the business is solid, the stock is attractive and the future for the company is bright. That’s exactly what we are seeing happening right now with Best Buy’s stock BBY. Following management's delivery of the report on Nov. 23, Best Buy share prices slumped immediately by more than 10% due to traders' unjustified fears that the boom times are ending for the retailer.

Even if conditions for the retailer are going to shift, however, that's not likely to derail Best Buy's ability to deliver strong returns.

The recent post-Q3 earnings selloff is heavily overdone and investors are unjustly punishing the stock.

The business is strong. Revenues are increasing. The earnings continue to grow. The Senior Management has been outstanding in capturing the surge in online shopping and establishing a leading position in the sector. New services with a relatively high profit margin like the Best Buy Total Tech Support powered by Geek Squad are offering a unique solution to the tens of millions of people who prefer to work from home, thus opening a whole new subscription based revenue stream for the company, which is definitely going to drive the company growth for the years to come!

Technical Analysis

From a technical standpoint, the stock managed to break out of its 18-month sideways channel on the daily chart in early November, 2021 as a result of the great business prospects for the company and it’s strong financial performance. After breaking above the strong horizontal resistance line lying at the $121.49 level (black horizontal line), the price rallied all the way up to the $142 mark, thus setting a new all-time high and also recording a remarkable 40% rally in less than 4 weeks. The optimism in the stock reached its peak level right before the company announced its Q3 Earnings report, as it seemed that investors already knew that the stock has substantially overextended to the upside and that a correction was imminent. We saw a reversal daily candle (shooting star) on Nov. 22Nd, which confirmed the shift in the market sentiment. The crash that followed was mainly driven by one-sided positioning and over speculation by market participants. The current corrective movement has brought the stock back down at the lower end of its prior multi-month sideways channel and we expect buyers to start coming back into the stock at these levels. All three key market indicators that we use RSI, Bollinger Bands and the Stochastic oscillator are showing that the price is extremely oversold and that a normalization of price action is imminent.

Our analysis shows that the stock will return back to its all-time highs of around $140 in the next 2-4 months and will potentially push higher towards the $150-175 region. This presents a tremendous opportunity for generating more than a 30% return on our investment in the company.

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Kind regards,
@DowExperts