Consumers Turned Off? Not at Best Buy

David Mushrall, 22 years old, of Knox, Maine, paid about $2,000 for a new 37-inch LCD flat-screen TV, an Xbox 360 Elite game console and the Halo 3 video game. He had just received his tax refund and could finally afford the long-planned purchases.

Ditto for Colin Lucas. "This is something I've been planning for two years," said Lucas, 24, of Bangor. "I'm a happy man today." He had made his first purchase of a TV, a 40-inch LCD flat-screen, at the sale price of $1,999. He paid with Best Buy gift cards he had received at birthdays and Christmases. His girlfriend had already bought him a home-theater surround-sound system in the fall. The faltering economy played no part in either's decision-making. "This has been a long time coming," said Lucas.

Recession or no recession, the masses will have their gadgets and gizmos. Sales of electronics and related software might soften because consumers are feeling the pinch from high heating-oil and gasoline prices and tighter credit, but a slew of factors this year should whet consumer appetites for video games, DVDs and televisions. That should prove a boon to giant Best Buy, the Richfield, Minn.-based consumer-electronics retailer.

There are other factors favoring Best Buy's long-term prospects. It boasts a strong and expanding presence in Canada. It is pushing into China and other overseas markets. Management gets high marks for its ability to contain expenses and deliver exemplary customer service through its helpful sales staffers and its Geek Squad technical-support group. Best Buy also won the coveted right to distribute Apple (AAPL) products, including the iPod and Macintosh notebooks, through "store-within-a-store" Apple Shops. By autumn, there should be about 600 Apple Shops in Best Buys across the U.S. Another plus: It is posting big market gains over ailing rival Circuit City Stores (CC) and is benefiting from the struggles of Sears Holdings (SHLD).

"Best Buy is a buy," says Larry Haverty, portfolio manager of Gabelli Global Multimedia Trust, who has long been a fan. "The sector will perform far better than people think it will." He points to video-game retailer GameStop (GME); its just-released 46% jump in earnings in the fourth quarter and 17% jump in same-store sales provide more evidence that the consumer-electronics sector may be less cyclical than thought. Haverty also believes consumer-discretionary stocks are "ideally positioned" to benefit as investors rotate away from frothy commodities, as they began to do in a big way last week.

Curt Scott, president and chief executive of Louisville, Ky.-based Todd Investment Advisors, calls Best Buy stock "attractive," explaining: "The soft economy gives you the opportunity to buy a wonderful company and a good franchise with a good theme. It's a play on the digital economy without buying a tech company."