Best Buy Stock Could Rally with Help From Analyst Upgrades

BBY's 40-day moving average has acted as support

Jul 5, 2017 at 10:27 AM
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In late May, retail stock Best Buy (NYSE:BBY) gapped higher from its 40-day moving average thanks to a strong showing in the earnings booth. More recently, the shares have pulled back from their post-earnings peak, only to find support from the 40-day once again. With the stock pushing higher from this trendline -- up 88% over the past 12 months -- it seems like a good time to join BBY on its next leg higher.

 

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Plus, there's still plenty of pessimism around Wall Street that could unwind and fuel an extended rally for Best Buy. For starters, analysts remain skeptical, with nine of 14 covering firms dishing out "hold" or "strong sell" ratings. It wouldn't be surprising to see upgrades come through and provide a lift for BBY.

Even options traders seem to be taking a bearish approach. Specifically, the shares have a Schaeffer's put/call open interest ratio (SOIR) of 3.37. Not only does this show put open interest more than triples call open interest among options set to expire within three months, but it also ranks just two percentage points from an annual high. This means short-term options traders are unusually put-skewed, and the stock could benefit as the hedges related to these bets begin to unwind.

Finally, it's a good time to target Best Buy options. This is based on the stock's Schaffer's Volatility Index (SVI) of 22% -- an annual low. In other words, near-term options are relatively cheap, from a historical volatility perspective.

Subscribers to Schaeffer's Weekend Trader Series options recommendation service received this BBY commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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