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Netflix, Inc. (NFLX), Best Buy Co., Inc. (BBY): Which Top 5 S&P 500 (.INX) Performer Has the Best Shot at Outperforming in Q2


Source: Finviz, Yahoo! Finance.

Which of these five can head higher in Q2?
It really is a tough choice deciding which of these names could have the most to gain in the second quarter considering how far they’ve already come; but I’ve concluded that Best Buy offers investors the greatest chance for a continuation move.

Micron is easy to eliminate because it’s in a highly cyclical sector. It’s the type of stock that you buy when the fundamentals are horrible, and no one wants them. When margins begin to improve, costs fall, and analysts start to upgrade — that’s your cue to exit, stage left!

H&R Block was easy to eliminate, because its legacy bricks-and-mortar stores are dragging down its results with slow growth, and its tax software glitch likely ruined its public image for yet another year. With little chance to gain ground on TurboTax or TaxAct, H&R Block is an easy avoid.

HP delivered better-than-expected results in its first-quarter, but it’s also in what I’d call the third-inning of a nine-inning restructuring game. HP still has thousands of layoffs yet to come, billions in costs to shave off its expenses, and CEO Meg Whitman isn’t exactly the revolutionary leader I look to who will enact these changes ahead of schedule.

Netflix, Inc. (NASDAQ:NFLX) is much tougher to eliminate given the strength behind its streaming results. But, on a valuation basis, I have a hard time believing that Netflix will be able to maintain a forward P/E of 63. Netflix’s DVD business, which is a considerably higher margin model, is still deteriorating, which really limits further upside, as margins contract with the company focusing on streaming content.

That leaves Best Buy which has wowed Wall Street with its price-matching strategy aimed squarely at stopping showrooming in its tracks. Furthermore, the effects of Amazon.com, Inc. (NASDAQ:AMZN) being forced to collect sales tax in an increasing number of states can’t be understated. Amazon is beginning to lose its comparative pricing advantage, which could play into Best Buy’s hand from both an in-store convenience factor, and also in terms of boosting its own direct-to-consumer business. At less than 10 times forward earnings and with a 3% yield, Best Buy can still offer value to investors.

The article Which Top 5 S&P 500 Performer Has the Best Shot at Outperforming in Q2 originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends, Amazon.com and Netflix.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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