Investing in These Retailers' Stock is 'Worth the Risk,' JPMorgan Says

JPMorgan analysts suggest that Best Buy and Wayfair stocks present an attractive risk-reward profile, despite not being the safest retail investments. Best Buy is expected to benefit from Nintendo Switch sales and back-to-school shopping, while Wayfair's stock is undervalued due to misconceptions about the impact of tariffs on its business model as a platform for furniture and home goods.

Analysis

JPMorgan's latest retail sector research note identifies Best Buy (BBY) and Wayfair (W) as investments offering a compelling risk-reward balance, deeming them "worth the risk" despite not being classified as the safest options. For Best Buy, analysts anticipate a sales uplift commencing in June, driven by the financial recognition of Nintendo Switch pre-orders, with further momentum expected in July from back-to-school purchases of computers, tablets, and phones. While Best Buy has incorporated existing tariffs into its financial guidance, mitigating some risk, this does not entirely eliminate potential earnings headwinds, and sales of non-computer merchandise could remain subdued. Nevertheless, JPMorgan considers BBY shares, recently trading around $67.40 (down approximately 21% year-to-date following a tariff-induced decline from late February), as "highly worth the risk-reward at this price." Similarly, Wayfair's stock is perceived as undervalued, with JPMorgan attributing this to investor misconceptions regarding the impact of tariffs on its platform-based business model, which differs significantly from traditional retailers. Wayfair shares were recently quoted near $41, reflecting a nearly 8% decline year-to-date.

Key Decisions for Investors

• Investors could consider the current depressed share prices of Best Buy and Wayfair as potential entry points, given JPMorgan's 'worth the risk' assessment and identified near-term catalysts.
• For Best Buy, monitor the impact of Nintendo Switch sales from June and back-to-school demand in July, while remaining cognizant of potential weakness in non-computer merchandise and ongoing tariff risks despite their inclusion in guidance.
• Re-evaluate Wayfair's exposure to tariffs, considering its platform model may offer more resilience than perceived by the market, potentially indicating an undervaluation at its current price.
• Closely track any new developments or changes regarding tariffs, as this remains a key variable affecting the outlook for both retailers.