You likely already know about Best Buy (BBY); there is probably a store is within 10 minutes of your home. Unfortunately the following thought may be rolling through your mind “Hey isn’t Amazon hurting their business?” asks Steve Reitmeister, editor of Reitmeister Total Return.
That was a fair question 5+ years ago. Gladly management has answered that question spectacularly by making fundamental changes that have led to consistent growth and shareholder returns. In fact, they have not had an earnings miss in over 5 years which puts their management team on the Honor Roll.
The funny thing is that these shares were soaring earlier in Q4 of 2021 going from $103 to $140 into earnings. However, investors decided to take some profits off the table. And next came the Omicron scare that hit all brick and mortar retailers hard. Next thing you know shares are pressing under $100 as we close the doors on 2021.
Yes, that is insane. But gladly it provides a stellar opportunity to snap up these quality shares. This sell off leaves Best Buy with a PE under 10 when the S&P stands at 24X earnings. Thus it's not surprising that the average Wall Street target price is $140. Even better, some top analysts see $150 to $175 as a more likely destination for shares.
So far we have checked the box for growth and value. Now let's talk about income. BBY sports an attractive 2.8% dividend yield. Yes, there are companies with much higher yields, but I would say that could be dangerous choice in 2022.
Why? That’s because the Fed has made clear that they intend to fight inflation in the coming year with a more aggressive taper for their massive monthly bond buying program. That will likely be followed by 3 rate hikes in 2022.
As they say, “Don’t Fight the Fed”. In this case they are telling you loud and clear that bond rates will move higher. And when that happens bond funds will lose money breaking a nearly 40 trend of bond funds enjoying gains as rates headed lower and lower and lower.
However, bond funds will not be the only investment punished. So too will high dividend yield stocks where there is not enough earnings growth to attract new investors to purchase shares.
This means that if you are going to venture into the income camp in 2022, then you absolutely need to make it a growth and income pick like BBY. Now you can appreciate that these shares offer a trifecta of goodness: growth, value and ample income.