Face-Off on Stocks: Microsoft, GameStop, Best Buy

A range-bound market has left lots of brand name companies trading at attractive levels on both a trailing and forward earnings basis -- but, as they say, sometimes a stock is cheap for a reason. That's the bull vs. bear case in a nutshell when it comes to the likes of Microsoft (MSFT), GameStop (GME) and Best Buy (BBY).

Each of these names is a leader in its field. Shares look cheap. And as technology and consumer discretionary plays, each of these stocks has a chance to outperform when investors regain their appetites for riskier assets. Tech and retail, after all, are early cycle sectors, meaning they do well at nascent stages of economic recovery.


Microsoft, a component of the Dow Jones Industrial Average ($INDU), still dominates the world's PCs with its lucrative operating system and Office software suite. Windows 7, the company's latest OS, is widely regarded as a tremendous improvement over Vista. The new Xbox 360 with a sleeker form factor, looks promising, as does the Kinect controller system.

On the other hand, shares in Microsoft haven't done anything in ten years -- and the next ten years look even more uncertain for the company. Its bread-and-butter software offerings are under assault from Google (GOOG) and Apple (AAPL). Its Bing search business is still a laggard to Google, too. And when it comes to the mobile business, Microsoft looks to be left farther and farther behind.

Best Buy Takes on GameStop

Stop GameStop, the nation's biggest video games and consoles retailer, was the stock to own when Xbox 360, Sony's (SNE) PlayStation 3 and Nintendo's (NTDOY) Wii were new and tsunami of hot games followed. But that was years ago and it's not clear if the company will ever be the one-stop shopping play on the gaming sector that it used to be -- especially as competitors get into the high-margin used games business and a future of digital downloads looms large.

But then bulls can point to GameStop customers' brand loyalty, especially among younger children, and the fact that its store are dedicated to video gaming, where big box retailer and online competitors try to do too much at once. The fact the company has a $300 million share buyback plan in place could also give shares a lift.

Best Buy, the nation's largest consumer electronics chain, could be a great stock to buy on the dip. Shares are off about 10% since the company missed Wall Street's quarterly revenue and earnings estimates last week. (Disappointing sales of flat-panel TVs and video games were partly to blame.) As a consumer discretionary stock selling tech, Best Buy could very well outperform as the recovery gains steam.

But macroeconomic concerns aside for a moment, even if the consumer does come back in force, Best Buy is facing ever greater competition from Wal-Mart (WMT) and Amazon.com (AMZN), not to mention a wide array of other online and regional players. That doesn't bode well for margins over the long haul.

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