FOCUS
74
FORTUNE.COM // JUNE.1.19
BEST BUY (NO. 74)
BEST BUY DERIVED nearly 92% of its revenues
in its latest fiscal year from the U.S. market,
and it has differentiated itself where other
electronics and home entertainment retailers
have failed. The company’s stock is trading at
a forward price-to-earnings ratio of 13 (well
below the S&P 500 average of around 17 times
forward P/E) and is down 13% from its 52-
week high—indicating that there’s value for
investors looking for retail plays.
The so-called consumer discretionary sec-
tor at large is a winner in the eyes of many
analysts, who have welcomed metrics indicat-
ing that U.S. consumer spending remains
strong amid favorable economic conditions.
“The consumer discretionaries have been left
behind a bit,” according to Don Townswick,
director of equity strategies at investment
management firm Conning, who adds that
many of the stocks in the sector “are not at the
levels you’d expect them to be. You really do
see some good value.”
By focusing on services like its Geek
Squad, Best Buy will continue to add value to
consumers beyond just serving as “Amazon’s
showroom,” as one analyst put it. A diverse
product offering, as well as reduced competi-
tion from the likes of bankrupt RadioShack,
should help insulate the company from
e-commerce competition.
INVEST
-40
-20
0
20
40
60
80
100
120%
2015 2016 2017 2018 2019
S&P 500 INDEX
S&P 500
17x
GROWTH OF BEST BUY
STOCK TOTAL RETURN
SINCE JAN. 1, 2015
118.1%
FORWARD P/E 13x
S&P 500
17x
-40
-20
0
20
40
60
80
100
120%
2015 2016 2017 2018 2019
GROWTH OF CITIZENS
FINANCIAL GROUP STOCK TOTAL
RETURN SINCE JAN. 1, 2015 58.6%
S&P 500 INDEX
FORWARD P/E 9x
CITIZENS FINANCIAL GROUP (NO. 415)
REGIONAL U.S. BANKS like Citizens Financial
Group—which is trading at a forward P/E
ratio of only 9—are considered a particularly
canny value play. While the Providence-
based financial institution was only the
22nd- largest commercial bank in the U.S.
by consolidated assets at the end of 2018, it
dominates its targeted region in the North-
east—with 1,100 bank branches and 2,900
ATMs in 11 states.
Not only do regional institutions like Citi-
zens benefit from limited to no exposure to in-
ternational headwinds, but as established local
players, they’re also rewarded with the kind of
repeat business that’s valuable at a time when
tech-oriented startup “neo-banks” are looking
to disrupt the consumer banking space.
Analysts say the overall economic picture
should also boost this sector. “The regional
banks, as an industry group, tend to be almost
entirely exposed to U.S. revenues, and they do
benefit in an environment where rates tend to
be stable or increasing,” Conning’s Townswick
notes. He adds that while he doesn’t expect a
“massive increase in rates” moving forward,
the movement is likely to be “more upward
than downward”—with regional banking
players also benefiting from “more [customer]
loyalty” than some of their larger, more scruti-
nized counterparts.
“the regional
banks, as
an industry
g r o u p,
benefit in an
environment
where rates
tend to be
stable or
incre asing,”
says one
analyst.
CHART SOURCES: BLOOMBERG; S&P GLOBAL
