TMCnet News
Consumer Electronics' Growing Hum Consumers are increasingly embracing digital products for use in the home, the car, and elsewhere. That's good news for the companies that sell high-tech gear and related services -- and one reason why Standard & Poor's Equity Research raised its investment outlook on the computer and electronics retail subindustry to modestly positive from neutral on June 8.Stocks in the group were up sharply in 2003, with the subindustry index advancing 75.0% in 2003, vs. a 27.4% rise for the S&P 1500. And while things have cooled down in 2004, the subindustry index remained in the green through June 4, posting a 1.6% rise, vs. a 1.2% gain for the 1500. (It's worth noting that there can be sharp, relatively quick price movements in these stocks.) We believe long-term trends for the group are favorable, and expect consumer-electronics retailers to further benefit from the trend toward consumer use of digital products and services. As new products are introduced, we see retailers' inventory management -- and their ability to sell more in-demand and/or high-margin items as part of their product mix -- becoming increasingly important in determining their success. NET DELIVERY. In addition, we anticipate a growing convergence between computers, televisions, cameras, and telecommunications equipment. This should include portable devices that make it increasingly easy to access information and entertainment. As for the impact of the Internet, the growing availability of entertainment for downloading from home is likely to hurt long-term sales of prerecorded media (e.g., CDs and DVDs) at stores, in our view. We believe that the extent to which the Internet is used as a medium for downloading or distributing recorded entertainment is likely to depend, in part, on the pace at which consumers switch to faster Web hook-ups, such as cable modems and digital subscriber phone lines. Also, we think retailers will have increasing opportunities to sell devices that play downloaded content, and possibly to sell new subscription services for music and video. Our favorite names in the group? Our top-ranked stock is Best Buy (BBY ; recent price, $53.30), which carries S&P's highest investment recommendation of 5 STARS, or buy. We think Best Buy is best positioned among its industry peers to benefit from a strong digital-product cycle. We also like videogame retailer GameStop (GME ; $15.9), ranked 4 STARS, or accumulate. We think recent price cuts from game-console manufacturers will produce higher unit sales of videogame hardware -- and dollar sales of related software and accessories. Also, we think the release of several new software titles later in fiscal 2005 (January) should boost store traffic. Electronics Boutique (ELBO ; $27.2), followed by S&P emerging growth analyst Markos Kaminis, also carries a 4-STARS ranking. |