We recently published a list of 11 Biggest AI and Tech Stock Analyst Upgrades and Downgrades in July So Far. Since Best Buy Co Inc (NYSE:BBY) ranks 9th on the list, it deserves a deeper look.
As soon as the latest softer-than-expected inflation data numbers were out, investors began to take profits from major tech stocks and pour money into small-cap companies amid hopes of rate cuts. However, some were quick to call the latest decline in tech stocks the end of the AI-fueled rally that has pushed stock valuations to eye-popping levels. But there are some Wall Street analysts who believe this is just a short-term trend and large tech and AI stocks have a lot of room to grow. Samantha McLemore, CIO of Patient Capital, said while talking to CNBC that the “bull market continues and the path of least resistance is higher.”
The analyst said that she has been in the market for a long time and investors have been worrying about the end of the bull market since 2009, while the S&P 500 has grown over 1000% (17% per year) since then.
“We don’t see any end to the bull market. We do think there’s a good chance we see a rotation and small caps, the laggards, do much better in the second half of the year as the Fed starts to cut rates.”
Some analysts believe the latest decline in tech stocks is yet another opportunity for long-term investors to pile into AI stocks for gains. In this backdrop, we decided to take a look at the top AI stock upgrades and downgrades this month. With each stock, we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Best Buy Co Inc (NYSE:BBY)
Number of Hedge Fund Investors: 30
Wall Street is currently going extremely bullish on Best Buy, thanks to the AI wave that is about to bring about a new wave of consumer spending. New retail sales data shows that spending on laptops and clothes is outpacing furniture and home improvement. Analysts believe consumers are ready to buy new AI-equipped laptops, a trend that could benefit retailers like Best Buy.
DA Davidson analyst Michael Baker recently said in a note that the last replacement cycle for laptops came during the pandemic and now that four years have passed on that cycle, consumers are ready to spend on new laptops, especially amid the AI wave. The analyst has a $95 price target on Best Buy stock.
Data also supports this trend. Market research firm Canalys estimates that one in five PCs shipped in 2024 will be AI-capable, translating into 170 million AI-capable PCs. Being a seller of laptops and PCs, Best Buy would be the direct beneficiary of this trend. Recent data shows improving consumer electronics trends, led by new PC demand, with worldwide PC shipments increasing year-over-year for the first time since Q3 2021 and a 1.5% rise in Q1 2024.
Last month, UBS also upgraded the stock to Buy from Neutral, citing the consumer demand cycle.
Bank of America also upgraded Best Buy (BBY) to a Buy rating from Sell, citing improved gross margins in a strong earnings report. The price target was raised from $67 to $100 due to increased sales and margin estimates. Analyst Steven Zaccone noted positive prospects for earnings and valuation, driven by tech replacement cycles, AI innovation, and solid margin execution. Zaccone also pointed to a positive inflection in same-store sales, driven by laptop purchases, and expected growth in AI adoption, particularly during back-to-school and holiday seasons. He believes Best Buy can maintain its EBIT margin despite potential competitive pressures.
Mairs & Power Growth Fund stated the following regarding Best Buy Co., Inc. (NYSE:BBY) in its fourth quarter 2023 investor letter:
“We added two smaller positions to the portfolio in the fourth quarter as well—Piper Sandler (PIPR) and Best Buy Co., Inc. (NYSE:BBY)–both of which are Minnesota-based. We also initiated a position in Best Buy, a leading electronics retailer with more than 1,000 stores nationwide. We’ve been impressed with management’s ability to navigate a difficult retail landscape, gaining share amongst its offline competitors. The consumer electronics market is suffering from a spending hangover after the Pandemic, but we are starting to see green shoots of a recovery; in the meantime, Best Buy offers a 5% dividend.”
Overall, Best Buy Co Inc (NYSE:BBY) ranks 9th on Insider Monkey’s list titled 11 Biggest AI and Tech Stock Analyst Upgrades and Downgrades in July So Far. While we acknowledge the potential of Best Buy Co Inc (NYSE:BBY), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BBY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.