Long CPB, Short BBY


My positioning in a couple of companies reporting earnings next week – Campbell Soup (CPB) and Best Buy (BBY) – nicely illustrates my overall positioning. I’m long CPB – which sells food i.e. necessities – and short BBY – which sells consumer electronics i.e. luxuries. Why? In a tough economic environment, consumers are buying what they need while forgoing what they can do without – and I expect this to continue. In other words, I’m playing defense because the bear market rally is over IMO.

CPB had been a terrific performer for me – until last quarter. The stock is down 16% over the last three months heading into its earnings report on Thursday morning – which presents an opportunity IMO. CPB is more than soup and at 14x current year EPS guidance with a 3.52% dividend, I think there is significant value here at current levels. The current quarter is CPB’s FY4Q which means it’s an especially important one because they’ll be providing full year guidance for FY24. With the stock down so much heading into the report and sentiment quite negative, even a decent quarter could be good enough.

BBY has also been performing poorly – but I expect that to continue due the discretionary nature of its business. Whereas CPB’s comps were +5% in the most recent quarter, BBY’s were -10%. That’s because the vast majority of BBY’s sales come from computing, mobile phones, consumer electronics and appliances – all discretionary, big ticket items. It’s true that BBY is cheap at 12x current year EPS guidance and pays a 5.06% dividend. I still think it’s too early to buy it and am staying short into its earnings report Tuesday morning.

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