Best Buy Report Spurs Ridiculous Rally In Consumer Discretionary Companies

That’s when the market took off – [S&P] futures went from 814 to 822.  When they think the consumer is completely dead, and Best Buy blows out earnings, even if a lot of it is lowered prices on things, the consumer is obviously not dead.

– Dave Rovelli, managing director in trading at Canaccord Adams

Best Buy (BBY) this morning reported a better than expected 4th quarter.  Adjusted net income was down 7.5% to $682 million and EPS was down 10 cents to $1.61.  But that still blew away analyst estimates for $1.38.  They also forecast earnings of $2.50-$2.90 for fiscal 2010 – above analysts estimates of $2.47.  As a result, the stock is off to the races – up 12% on the biggest volume in about 2 years.

But it’s getting ridiculous.  The stock has now more than doubled from its Nov. 21 closing low ($17.63) to trade over $37 a share.  Even if they hit the mid-range of their forward earnings target ($2.70), the stock is now trading for 14 times forward earnings – no bargain in a bear market.

Investors appear to have lost sight of the fact that US same store sales were still off 4.8%.  The fundamentals for selling discretionary items are still terrible.

Anyways, this report has lit a fire under consumer discretionary companies.  Here are some examples:

Target (TGT) +5%

Home Depot (HD) +3%

Lowe’s (LOW) +4%

Nordstrom’s (JWN) +7%

Macy’s (M) +9%

Brinker International (EAT – owner of Chili’s and Macaroni Grill) +8%

Starbucks (SBUX) +7%

This is way overdone.  I’ve been trying to get short Amazon, Best Buy and Starbucks but Scottrade has no available shares to short.

Disclosure: Top Gun has no position in any of the securities mentioned in this article.