The inclusion of speculation within your portfolio is one of the necessities of a diversified portfolio in a new age market. These are companies that have “potential” catalysts that could lead to significant gains. As of late, Best Buy Co., Inc. (NYSE:BBY) has become a popular choice for those who are acquiring a speculative stock in their portfolio, as it broke out of its trend last Friday to post gains of 7.38%. However, the question is whether or not the stock is a good buy right now?
Why Has Best Buy Fallen?
So why would now be a good time to buy Best Buy? Over the last three years the electronics retailer has seen flat and declining revenue as retailers switch to cheaper online retailers such as Amazon.com, Inc. (NASDAQ:AMZN) for electronic purchases. In five years Best Buy has lost 62% of its value while Amazon has increased in value by 263% during the same period. Therefore, as you can see, it is clear that investors have preferred Amazon as it continues to grow rapidly, and investors have avoided Best Buy as some anticipate the second coming of Circuit City.
What is the Catalyst?
Most are aware that Best Buy founder Richard Schulze is in the process of attempting to take the company private. While this remains a strong possibility there was news on Friday that makes Best Buy more attractive as a potential investment. On Friday Amazon fell lower by more than 1.5%, while Best Buy rose over 7%, due to news that Democrats and the GOP are working on a bill in Congress to resolve the online sales tax issue.
Up until recently, there was no sales tax for many of these online-based retail companies, but now certain states require that consumers pay sales tax when purchasing products from companies such as Amazon, eBay Inc (NASDAQ:EBAY), and Overstock.com, Inc. (NASDAQ:OSTK). According to Reuters, a modified version of the sales tax bill will be finalized and sent to President Obama this year. If approved, it would mean that consumers would have to pay sales tax in all states from purchases on Amazon and other online retailers.
The likelihood of this bill passing is great! Currently, the country is missing out on a lot of potential revenue from online sites, and with online sales being more than 5% of all retail sales (and growing) it seems likely that a bill to implement a sales tax would be passed. When you think about it, the fact that this bill has not been passed is not an issue of politicians not wanting sales tax from online retailers, but rather politicians not addressing the issue in the past, or them not moving at the speed of innovation.