(B)(N) BBY Best Buy Company Incorporated

Deal Book. It’s time to re-visit Best Buy. When last we looked at it in early January, the company had three losing quarters behind it and the stock price was in the $12 to $15 range, and we were wondering if the next stop wasn’t zero as the company’s co-founder, Mr. Richard Schulze, was rumoured to be thinking about taking the company private.

North-South Axis
From Russia to Argentina

Since then, they’ve had two positive quarters and the sustaining interest of several (three) institutional investors who now own more than 20% of the stock, and we can count just a few more to get past 40%.

The Street thinks that the company is doomed (The Street, September 30, 2013, Rocco: J.C. Penney Crashed, Best Buy Is Next) but we’re not so sure as the company finds new customers on the north-south axis from Canada to Mexico and presents its products, services and culture in French, English and Spanish.

We don’t know the future, but we do know that the company has been eligible for the Perpetual Bond™ since much lower prices of $20 in January this year, and that it’s trading now at $38 to $40 for a +200% gain since December. Please see Exhibit 1 below.

Our estimate of the downside in the stock price due to the demonstrated volatility is minus (-$7) so that we would not be surprised by any price between the current $38 and $32 to $45. However, with a large institutional interest in the stock, one should expect surprises.

The company expects to pay a dividend of $232 million to its shareholders this year for a current yield of 1.8%.

We can set our stop/loss at $35 (and plan to buy the stock back at lower prices but still above the price of risk) or buy the November put at $36 for $1.25 per share today, and could also partially offset the cost of that by selling the November call at $40 for $0.95 per share so that for the cost of holding the stock at $38 and the net cost of the collar at $0.30 per share ($1.25 less $0.95), we can be assured of a stock price between $36 and $40, no matter what, and continue to collect our dividends through November while we wait for new information.

Exhibit 1: (B)(N) BBY Best Buy Company – Risk Price Chart

(B)(N) BBY Best Buy Company Incorporated – October 2013

Best Buy Company Incorporated is a multinational retailer of consumer electronics, computing and mobile phone products, entertainment products, appliances and related services.

(Please Click on the Chart to make it larger if required.)

From the Company: Best Buy Company Incorporated operates as an e-commerce and physical retailer of consumer electronics in the United States, Europe, Canada, and China. The company’s stores offer video products, including televisions, e-readers, navigation products, digital cameras and accessories, digital camcorders and accessories, and DVD and Blu-ray players; audio products, such as MP3 players and accessories, home theater audio systems and components, and musical instruments; and mobile electronics comprising car stereo and satellite radio products. Its stores also provide computing and mobile phone products consisting of notebook and desktop computers, tablets, monitors, mobile phones and related subscription service commissions, hard drives and other storage devices, and networking equipment, as well as office supplies and other related accessories, such as printers; entertainment products, including video gaming hardware and software, DVDs, Blu-rays, CDs, digital downloads, and computer software; and appliances. In addition, the company offers service contracts, extended warranties, computer-related services, and product repair, as well as delivery and installation services for home theaters, and mobile audio and appliances; and provides snacks and beverages. It operates retail stores and call centers, as well as online retail operations under various brand names, such as Best Buy, Best Buy Mobile, The Carphone Warehouse, Five Star, Future Shop, Geek Squad, Magnolia Audio Video, Pacific Sales, Cell Shop, Connect Pro, Best Buy Express, and The Phone House. The company also operates BestBuy.com, BestBuy.ca, BestBuyMobile.com, CarphoneWarehouse.com, FutureShop.ca, and PhoneHouse.com. Best Buy Co., Inc. has a strategic partnership with Microsoft Corporation to create the Windows Stores. The company was formerly known as Sound of Music, Inc. and changed its name to Best Buy Co., Inc. in 1983. Best Buy Co., Inc. was founded in 1966, has 165,000 employees, and is headquartered in Richfield, Minnesota.

For more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™“
Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

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Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.