3 Reasons to Sell Best Buy Now

A sputtering economy, implosions at financial institutions, or just plain bad management -- on any given day, investors can name a number of reasons to sell a stock. Yet while panic is never beneficial to investors, it's good practice to play devil's advocate with investments from time to time.

In Motley Fool CAPS, more than 120,000 members have weighed in on nearly 5,400 stocks, sharing bullish and bearish opinions alike.

In the case of top retailer Best Buy (NYSE: BBY), a total of 2,895 members have weighed in on its chances of success. I've already plucked out some of the bullish rationale backing Best Buy today, so here are three counterpoints to consider, courtesy of CAPS:

1. It's ugly outside
The economic cycle that everyone has enjoyed for the past several years has abruptly changed, and it isn't pretty. Cheap credit has evaporated and buyers are no longer reaching for the credit card as often, leading Best Buy CEO Brad Anderson to sum it up eloquently as "the most difficult climate we've ever seen." Some investors believe that outside of leveraged consumerism, we've got nothing.

2. Wrong place at the wrong time
In shaky times, many investors tend to flee stocks in retailers like Amazon.com (Nasdaq: AMZN) and RadioShack (NYSE: RSH), as even favored discount retailers like Wal-Mart (NYSE: WMT) are lowering guidance. Instead, investors favor defensive stocks that are expected to ride out the recession, like Coca-Cola (NYSE: KO), McDonald's (NYSE: MCD), and biotechs like Gilead Sciences (Nasdaq: GILD).

3. Squeezing profits
Shoppers shopped on Black Friday, but many investors worry that the deep discounts at Best Buy and other retailers are stretching their already-thin profits. Best Buy faces tough competition from discounts at Wal-Mart, and Circuit City is offering fire-sale prices on electronics at the 155 stores it's closing because it's under bankruptcy protection. The grim assessment also led Best Buy to lower its full-year guidance, pointing to a new era when it's tougher to turn a profit.

Of course, Best Buy has survived and thrived despite dozens of obstacles. But the question about whether the company can continue to do so profitably is why CAPS is such a great resource for augmenting your own analysis.

Copyright © 2008 Universal Press Syndicate.