Why Best Buy Co Inc (BBY) Could Break From Its Dismal December Trend

With plenty of potential for pessimism to to unwind, Best Buy Co Inc (BBY) could climb to higher highs

Dec 9, 2016 at 2:36 PM
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Electronics retailer Best Buy Co Inc (NYSE:BBY) has been on a tear in 2016, nearly doubling in value from its mid-January annual low. In fact, the shares snagged an eight-year high of $49.40 on Thursday, but were last seen off 0.9% at $48.85. Despite the equity's outperformance this year, traders and analysts have been exceptionally bearish toward BBY, leaving plenty of potential purchasing power on the sidelines.

Starting with the brokerage bunch, 14 firms currently track BBY stock, and 10 of them maintain a rating of "hold" or "strong sell." What's more, the average 12-month price target now sits underfoot, at $45.48. Simply stated, the security may be overdue for a round of upgrades and/or price-target hikes, which could be a boon for the shares.

Short sellers have also had BBY in their sights. These bearish bets climbed by nearly 11% during the most recent two-week reporting period, and now account for 13.6% of the stock's available float. It would take more than a week for shorts to cover all these positions, based on the stock's average daily volume -- plenty of buying power to give BBY a boost.

At first glance, it appears options traders may be diverging from the pack, taking a more upbeat approach. After all, BBY's 50-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at a top-heavy 2.62 -- just 2 percentage points from an annual call-skewed high. But with short interest at elevated levels, it's likely some of this call buying has come at the hands of short sellers looking for a hedge against further upside.

Meanwhile, near-term open interest is approaching a put-skewed extreme. BBY holds a Schaeffer's put/call open interest ratio (SOIR) of 2.28 -- indicating put open interest more than doubles call open interest among options in the front three months' series. Moreover, this ratio rests higher than 95% of all comparable readings from the last 52 weeks.

With all of this pessimism toward BBY, there's plenty of room for a capitulation of bearish positions to create tailwinds for the shares -- and help the stock break from its history of dismal Decembers. Plus, peak put open interest in Best Buy Co Inc's (NYSE:BBY) December series resides at the underfoot 45 strike. As the hedges related to these bets unwind over the next week, the $45 level could be reinforced as support.

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