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The Crowd Is Wrong About This Well-Known Retail Stock

 April 04, 2012 10:44 AM

Please excuse me for sounding like a broken record, but in today's market, you need to look at adding stocks with a high margin of safety to your portfolio. The S&P 500's stunning six-month surge should have you thinking about capital preservation as much as capital appreciation.

Simply put, it's hard for me to get behind a stock that has already had a strong recent run, knowing that a shift in the market mood could leave me holding the bag if profit-taking kicks in.

This isn't to suggest that poorly-trading stocks are the only ones that hold appeal. Indeed many of these relative duds are likely to remain as laggards while they address internal operational challenges. Yet even in this group, you need to scour the landscape for potential gainers.

In that light, I was pretty intrigued to read a recent bullish report by Credit Suisse on beleaguered retailer Best Buy (NYSE: BBY). This consumer electronics chain should have benefited from the demise of bankrupted rival Circuit City, but instead saw its own market share recede in the face of Amazon.com (Nasdaq: AMZN) and Wal-Mart (NYSE: WMT)

Best Buy's sales grew just 0.1% in fiscal (February) 2011 to $49.8 billion, and just 1.9% in fiscal 2012 (to $50.7 billion). Considering employment levels look better than they did a year earlier, that's pretty anemic growth. Perhaps even more damning, Best Buy is making less profit on each sale. EBITDA margins have historically hovered in the 6% to 7% range, but fell to just 4.1% in fiscal 2012.

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