In a piece a few weeks ago titled, Higher Energy Costs and Consumer Spending we talked about, and brace yourself for this, the impact of higher energy costs on consumer spending. Now, aside from the rather explicit title I thought it was a well written piece and made many valid points.

In the piece Chad Langager specifically mentioned one of the targets of today's market bears – Best Buy (BBY) – whose stock price shed nearly 12% after missing Q3 EPS estimates by a nickel ($0.25 vs $0.30). The drop represents approximately $3B of market cap.

In the piece we noted, "We could see companies who sell big ticket items like Best Buy (BBY) hurting as consumers spend less on electronics including televisions, computers, and videogames. It is difficult for the average family to justify purchasing a $3,000 television when their discretionary spending is being greatly diminished as a result of energy costs."

I certainly don't want to go on a rant about this, because believe you me, there have been instances of stocks that we have been bearish about in our market commentary that have subsequently – almost in a spiteful fashion might I add – shot up in price (for more on this check out Taking Beverages to the Extreme or ?).

However the point I want to make is how critical this quarter (Q4) and the Christmas season is going to be for retailers. The inevitable hits and misses are going to come to light next earnings season. Betting one way or the other, in my opinion at least, is pretty gutsy. I believe this for a number of reasons, not the least of which it the fact that it is really a side bet on a number of things including energy prices, how harsh the winter is (demand for energy), how much shopping is done online, etc. Basically there are a number of factors that will lead to strong or weak sales for retailers, none of which are uncomplicated.

If you look at the Investopedia Advisor's model portfolios you will notice that we are very light in the retail sector, in fact we own only one retailer. We consider the one retailer we own to be best of breed and somewhat insulated from many of the forces regularly affecting retailers - including today's stock market dud - Best Buy.

As a side note, I fully admitted earlier that we, from time to time can be wrong. Anyone in this business can be. However our philosophy regarding selecting companies and delivering stock ideas to our members is one of "an inch wide a mile deep". That is to say we pass over literally thousands upon thousands of stocks to bring our members only the very best of the best each month in our members only newsletter.

So far the strategy has worked well, as of today we had only three losers (which we still like) in a portfolio of 19 (sitting at -13.74%, -9.42% and -4.03% respectively) with 13 double digit gainers and 1 triple digit gain and an average gain of approximately 30%.

If you want to give yourself an early Christmas present why not check out the Investopedia Advisor risk-free for 30 days. Click here to learn more.

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center