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alstry (35.17)

Alstry's NEW Favorite Red Thumb...By By BestBuy

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March 25, 2009 – Comments (10)

This one ain't complicated.  Recently a number of Wall Street analysts UPGRADED this stock and the company's outlook.  Keep the analyst upgrades in mind as this is another one where Alstry is out of step with Wall Street.

In the last few years, BestBuy has spend over $5 Billion dollars buying back its own stock and investing into an electronics retailer in England.  Now low on cash and high on debt, BestBuy is facing the eye of the FU virus in a relatively weaker financial position and suceptible to the viral nature of the disease.

I find it amazing how the current FU problem is being presented to the people.  It is NOT the debt that is toxic, it is the citizens of the United States(and other places in the world) that have been infected with the disease of excessive debt.  Over the last 10 years, the average debt of the American household doubled while their incomes remained generally stagnant.  Now millions of American families can no longer afford to spend nor qualify to borrow money to maintain the spending spree spawned by borrowing and borrowing without having to qualify.

Since fewer and fewer are spending, more and more are going out of business and shutting down and firing workers.  Expect this trend to accellerate in upcoming months as the disease spreads.

Debt only becomes toxic when the Borrower Defaults.....if the borrower was financially healthy, the debt wouldn't default.  Sorta like saying there is a caughing epidemic due to a significant increase in lung cancer among Americans.  The problem is not the caughing...it is the cancer....but we seem to be focusing on the caughing....which is a symptom of the disease.

Further, it is not just the citizens of the United States that is infected with too much debt, it is also millions of businesses, cities, states, school districts, hospital systems, and much much more.  Expect TRILLIONS of addtional debt to go toxic in the next few quarters as millions and millions of borrowers become symptomatic with the FU virus as a result of too much debt.

This was easy to see if you diagnosed the illness...why do you think Alstry is the Doctor of Alstrynomics who is short this company in real life.  Those of you who still think removing toxic debt from banks is going to help out, ask those who have been infected with excessive debt disease if they can afford to take on any additional obligations?

Once the banks stopped lending, the latent nature of the disease became symptomatic as excessive lending was the cause of the excessive borrowing disease in the first place.  Just like narcotics can be paliative, taking them in excess can end in a sickness worse then the initial illness or symptom it was intending mitigate.  As more and more became symptomatic started to default, the banks cut back lending even further.  The more the banks cut back, the more symptomatic the disease became.  Until we purge the debt from the system....the problems only get worse as rising interest obligations are suffocating our economy.

Guess what???  Lots of Best Buy's sales are debt based...you know......0 down interest free loans, credit card purchases, etc....some people might consider those subprime loans....which are seemingly becoming harder and harder to come by....especially in the upcoming months when credit card companies eliminate trillions worth of credit lines on millions of American families.

Best Buy reports tomorrow, expect this past quarters numbers to be OK, it is going forward where this company faces headwinds due to the fact that fewer and fewer of its customers will have the funds or qualify to borrow money to purchase Best Buy's electronics.  In otherwords, BestBuy's customers might be forced to say FU because they don't have the ability to buy product.  The demand will be there, just not the funds to purchase.

Best Buy is doing a great job...it is just that millions of its customers have run out of money.

What can Alstry say...the Doctor calls it as he sees it as the current CEO is departing just when the tsunami may be about to hit the shore????  Let's listen to what the company says tomorrow morning to get a better perspective.

 

10 Comments – Post Your Own

#1) On March 25, 2009 at 9:32 PM, alstry (35.17) wrote:

By By BestBuy the way, this symtoms confronting BestBuy are similar to symptoms facing many companies catering primarily to overleveaged American customers.

If you are aware of any highly leveraged companies focusing on the American consumer, Alstry would be more than happy to red thumb them in his CAPs portfolio.

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#2) On March 25, 2009 at 9:39 PM, alstry (35.17) wrote:

YUP...sure looks like price inflation to me......

 

LOS ANGELES (MarketWatch) -- Japan's Corporate Service Price Index fell 2.6% in February from the year before, the sharpest fall in seven years, the Bank of Japan reported Thursday.

Transportation prices paid by Japanese corporations showed the steepest decline, down 9% on year, followed by a 6.4% drop for advertising.

If Japense companies are paying less for transporation, what do you think American companies are paying???

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#3) On March 25, 2009 at 11:52 PM, XMFSinchiruna (27.71) wrote:

We definitely agree there:

http://www.fool.com/investing/general/2009/01/28/worst-stock-for-2009-best-buy.aspx

Good post!

While I'm at it, I want to applaud your efforts to remind people not to panic, but to prepare instead. 

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#4) On March 26, 2009 at 12:55 AM, d1david (29.15) wrote:

dude... i hope you are wrong.. i will miss circuit city as they offered me the better deal on my tv and laptop i am using this to write this on (when they were in business)..

if best buy goes out.... i will be stuck buying my electronics at walmart... yuck

i think with less competition from cc... they can stay alive... not to mention, the people i know, family, co-workers, etc... all regular joe-schmoes, are still buying big screen tv's, tivo sets, computers, video games, etc...  

yes the debt load of the public is getting to be a burden... but it seems it is not to the tipping point (yet)

 

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#5) On March 26, 2009 at 9:24 AM, alstry (35.17) wrote:

The earnings report this morning came in pretty much in line with my expectations, decent quarter with lower y/y earnings.....however the guidance for 2010 seems overly ambitious at best and wishful thinking from this perspective.

Something that requires further analysis is that current liabilities INCREASED about $1.7B at a time when the company said it liquidated inventory.....I am not sure why???

CASH also dropped almost $1B...

The report came in pretty much as expected...EXCEPT for management's guidance going forward....

Based on BBY's current inventory levels, lower cash position, and higher current liabilities against a slowing economy......it does not seem the company will be able to come close to its current guidance.....

A more detailed analysis is required.....red thumb remains

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#6) On March 26, 2009 at 10:29 AM, RVAspeculator (28.94) wrote:

I bought it yesterday just because so many are short this name and I figured "better than expected" would make it skyrocket.

I just sold it for a 1 day, 14.5% profit.....   Stock traders are silly folks bidding something like this up that much.

 

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#7) On March 26, 2009 at 11:47 AM, alstry (35.17) wrote:

Nice play and that is why I blogged AFTER hours...this behavior was definitely a possiblity.

My guess is that we might be getting a capital raising pump...we shall see

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#8) On March 26, 2009 at 4:32 PM, CBombay (28.34) wrote:

Also, their receivables are up $1.3 Billion!!!!

I'd let this one run on the news.  But next time COF or AMX announce more credit card defaults, you can short this again.  (Or right before for all the Top Fools.)

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#9) On April 01, 2009 at 8:12 PM, jester112358 (28.70) wrote:

Very good point:

 "It is NOT the debt that is toxic, it is the citizens of the United States(and other places in the world) that have been infected with the disease of excessive debt."

 I noticed GMAC is resuming auto loans to subprime borrowers in a futile attempt to revive auto sales.  That really worked out for them the first time didn't it.  Hopefully, debt slaves won't drink the poisoned cool aid and take on more debt. 

With BestBuy is seems a critical issue is how the reduced competition with Circuit city will help their margins and cash flow.   Seems like it could be helpful to them.

Nice post as always. 

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#10) On November 13, 2009 at 5:53 PM, Donnernv (< 20) wrote:

11/26/08 BBY  short:$20.71   now:$41.88    gain:+102.26%   S&P:+26.77%   score lost:-75.50

Great call.  You lost only 75.5 score points.  Better than most of the crap you are holding.

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