Now that Senator Barack Obama has turned into President-elect Barack Obama, I feel that the retail sector needs to be looked at. And one of the better ideas out there just might be Best Buy (NYSE: BBY).
Here's my thinking. Obama seems to be a Democrat who, whether he wants to promote this or not, is into wealth redistribution. I believe he will do what he can to increase the taxes on wealthy individuals and lower them on not-so-wealthy individuals. Furthermore, I anticipate more stimulus checks under his administration. I don't think that the economy is going to get better overnight once he takes office in January, and I would imagine that he'll want to send more money to the masses to see if our consumer culture might be able to save the country from its current financial mess by spending freely. Since Wall Street fat cats have been reaping huge bonuses, I think an Obama administration will see fit to spread wealth to those who don't live in mansions built on the failed promise (and premise for that matter) of mortgage-backed securities.
Under an Obama administration, non-wealthy individuals may begin to feel wealthier. And they will spend. Why will Best Buy prosper because of this? I think if consumer confidence increases due to a positive wealth effect, then an electronics chain that has a lot of brand equity should do well. People might be in the mood to upgrade their television sets, buy a new laptop, purchase a bunch of video-game software, replace an aging appliance, etc. Of course, one could argue that Wal-Mart (NYSE: WMT) or Target (NYSE: TGT) would benefit from Obama just as easily as Best Buy would. I can see that. But the reason I'm singling out Best Buy is that I believe that tech products might be the retail category that receives the biggest boost. Since this electronics chain has a reputation for being an expert in the field, it would seem logical that people will gravitate toward its locations. And it certainly is doing a lot better than Circuit City (NYSE: CC).
Now that the election is over and Obama is set to take leadership of the country, I think retailers might see a pop. And Best Buy's stock, which has been knocked quite a bit this year, is in a decent position to reap some capital appreciation. Of course, it's up to management to take full advantage of a shift in consumer sentiment under the new administration. Nothing's free in this world, so Best Buy can't take anything for granted; it'll have to up the marketing ante and compete accordingly.
No matter what, though, I do see good things for Best Buy after Obama starts promoting his philosophies vis a vis taxes and corporate governance. Like I say, if the consumer feels that more money might be coming her way, then her confidence will go up, and it might be time for a new computer. And that's where Best Buy comes in. In many ways, it's an obvious pick.
Disclosure: I don't own any company mentioned; positions can change at any time.
Entrepreneur's Journal: Putting together a solid sales contract
The week in preview: Earnings from Walmart, Macy's, and other retailers
Six top trades for the rest of 2009
Reader Comments (Page 1 of 1)
11-05-2008 @ 1:13PM
camille said...
LOL. yes under an obama admin more consumer spending and not saving. way to go! right back where we started. change you can believe in!
11-05-2008 @ 1:15PM
Confused said...
Is this a joke? Are you poking fun or are you seriously advocating that people take their hard-earned cash and invest in BBY?
11-05-2008 @ 2:51PM
Iridium said...
Look, Obama is going to increase taxes and social security credits on business. This will lead to higher prices for consumer products across the board. Even if the average person gets more money in the form of handouts they will be paying a higher price for anything that is bought. Effectively people will be poorer not richer.
You Liberals just don't get it. The more you tax the top to hand out to the bottom the more you cause prices to go up. Companies do not pay taxes. Companies pass taxes along to the consumer in the form of higher prices. In effect all consumers pay the taxes that are paid by business. Then individuals are taxed on all income that they generate.
Taxes should have never been raised in the first place. The reason why trickle down economics does not work is that there is no rule that says that a company must lower its prices if taxes are cut. A company is just going to keep the extra margin for profit. Only increased competition can lower price.
The only true way to bring the economy back is to decrease individual tax and give huge tax breaks to small business helping to drive the competetive market forces. Then you lower taxes for larger corporations. Competition will force them to lower prices in concert with lower tax rates.
11-05-2008 @ 2:59PM
Iridium said...
I forgot to add mortages to the mix. This illustrates my point exactly.
The average mortage rate has actually increased since the fed dropped its rate. In fact mortage rates are close to where they were when the Fed rate was 5.5%.
The banks have plenty of money to lend and there are a lot of people that would like to buy a house given the price levels in many areas. The problem is that with the new rules and high interest rate they simply can not afford a mortage.
There is no reason for banks to lower the rate because there is virtually no competition in the banking industry. There is nowhere else for people to go.
Instead of bailing out large banks th egoverment should have issued the $700 million to newly created small credit unions based on the fed lending rate. These small credit unions then could have issed mortages at 3% letting many people purchase a house at an affordable price that they would have no problem paying back. The increased competition would force large banks to lower thier rates thereby increasing the number of new loans which would grow the economy.
11-10-2008 @ 10:12AM
John Hawkins said...
I must agree that Best Buy may be a good opportunity with the new funding of the consumer via my money..... Being very grateful that I am one of those 5% on who Obama will raise taxes; those who already pay 62% of the tax that gets paid (source www.irs.gov), it makes me feel all "peachy keen" to know that the money will go to buy an HD tv at best buy.....the tv that I won't buy myself because it costs too much. I would suggest EZCorp or Cash America....they made a killing on the previous redistribution payments.
11-25-2008 @ 12:36AM
Lew Green said...
Wow... follow this guy off a cliff! There are a lot of good ideas to benefit from picking a portfolio to benefit from 1 trillion in stimulus spending and a new energy policy, RETAIL is NOT one of them.
We have been consuming at 20% beyond our means for a decade financed cheaply by China.
(while wall street gambled at 30X it's means)This is going to end, stimulus can just hopefully prevent us falling off a cliff and give us breathing room to rebuild. It is not going to bring the "good old days" back.
We will have 20% FEWER retail stores in the USA, 20% fewer brands and sell 20% less "stuff" that we don't really need, or certainly don't need to replace/upgrade so often. Laptops will be replaced every 3 years not 2, Cell phones every 2 years not 1, and TV's... they actually last quite a long time.
Best Buy in particular is a dog. Look at the vast wasted square footage in their stores and the lousy customer service, plus the rise of E commerce for big ticket items.
The original poster and some of the comments seem to have their financial judgment clouded by cartoonish, vitriolic politics left over from the election.