The Street loves a good turnaround story. Not only do investors like to root for the underdog, but turnaround stocks also have the ability to deliver market-crushing returns. And there's been no shortage of them in 2013.
That group includes Herbalife Ltd (HLF), up 116%, Green Mountain Coffee Roasters, Inc. (GMCR), up 94% and Chesapeake Energy Corp (CHK), up 60%.
But even though those are all impressive, market-crushing gains on their own, there is one stock that trumps them all. This well-know, industry leader has delivered an eye-popping 224% return in 2013, making it a top contender for turnaround stock of the year. Take a look at the impressive move below.
I'm talking about Best Buy Co., Inc. (BBY), a familiar name to most and a global leader in consumer electronics. The company's big gain in 2013 comes on the heels of a crushing 3 year slide that saw Best Buy crash from a multi-year high above $48 in early 2010 to just $11 in December of 2012.
That big rebound has been driven by the company's strategic initiative to adjust its business model and adapt to a dynamic market where Best Buy is being challenged with intense competition from online retailers and mobile, ecommerce.
But even though Best Buy's big turnaround effort is producing phenomenal results on the chart, it also triggered a key event that should make investors nervous.
New CEO Hulbert Joly recently made one the biggest insider moves I've seen in a long time, shocking the market by dumping 450,000 shares, exercising and selling 350,467 stock options while also selling 100,686 previously owned shares.
So what is Mr. Joly looking at that has him locking in big profits?
The official statement from Best Buy says the sale was driven by Joly's recent divorce and a short-term need for cash and liquidity. It's also important to note that Mr. Joly remains heavily invested in Best Buy, as most CEO's engineering a turnaround story are. But Best Buy's recent surge and valuation made this a very go! od time to lock in some profit. Because while shares have been surging on the chart, earnings and estimates have only increased marginally.
With the 2013 estimate up 7% in the last 3 months, Best Buy is expected to earn $2.41 this year. That has shares trading with a forward P/E 16x. That hardly seems unreasonable when companies such as Tesla, Inc. (TSLA) trades with a forward P/E of 862. But when considering that Best Buy's forward P/E was just a pinch below 5x early in the year, which represents more than a 200% increase how the company is being valued by the Street in less than 9 months. And it was a big enough swing to push Mr. Joly into locking in some profit while the taking is good.
Because long term, big-box retailers are going to struggle as the space contracts due to intense competition from online channels.
The Takeaway
Best Buy has seen a huge bounce in 2013, with shares up a market-crushing 224% on the year. But even though the company continues to successfully execute a comprehensive turnaround strategy, shares have jumped from a forward P/E of 5X early in the year to 16X, more than a 200% increase in less than 9 months. That means it's a good time for regular investors to think about locking in some profit after an incredible rebound.
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