Sell Apple, Buy Best Buy?

If BB&T Capital Markets analyst Anthony Chukumba is right, Best Buy may start to rise like a phoenix out of Apple's ashes.

Chukumba upgraded shares of the beleaguered retailer yesterday, bumping his firm's rating from hold to buy and establishing a $21 price target. The thesis here is that Apple's fall from grace is a golden opportunity for the consumer electronics superstore.

On the surface, it makes sense.

Apple has hurt Best Buy -- and is on the brink of putting RadioShack out of business -- because of the iPhone's success.

New connections
Apple's success has hurt Best Buy in more ways than one. For starters, Apple's the belle of the mall. It draws in customers seeking the latest iToys. Why go to Best Buy when you know you want an iPhone or an iPad? The prices are essentially the same, so why not go for the full Apple experience? You won't have to stumble over a stack of Justin Bieber CDs or argue your way out of obsolescence insurance. It also doesn't help that when Apple introduces a new product its namesake stores are the ones getting the healthiest allocations.

Apple's waning popularity should woo smartphone buyers back to Best Buy, since there really isn't a chain of Samsung or HTC stores populating suburban shopping centers.

The other major way that Apple has hurt Best Buy is that iPhones carry crummy margins. It's not just wireless carriers that are happy to see Android devices gaining momentum, freeing them of shelling out more than $300 for every iPhone they sell. The markups are lousy for retailers, too.

RadioShack -- a company that has more to gain than even Best Buy -- has seen its margins obliterated since it shifted its focus to emphasize wireless devices. The only concept that's still growing at the tired Best Buy is its chain of small-box Best Buy Mobile stores.

If the iPhone is no longer cool, Best Buy stands to improve, according to Chukumba.

Unfortunately, it's not as easy as that.

Don't bury Apple -- it's not dead yet
There are a few problems with the theory that Best Buy will benefit from Apple's slip in relevance.

For starters, why should Best Buy be the beneficiary?

Once someone buys a smartphone, it's the wireless carrier that keeps monthly contact with the customer. It's the carrier that will likely sell the next device when it's time to upgrade.

Best Buy will also suffer on pricing. The same showrooming trend that has seen Amazon.com continue to gain market share in consumer electronics at Best Buy's expense doesn't change. If anything, Apple's slip is a bigger coup for Amazon since it doesn't offer new carrier-subsidized iPhones the way that Best Buy does.

Finally, let's touch on innovation. Portable media players were dead until the iPod was introduced in 2001. The smartphone wasn't cool until Apple rolled out the original iPhone. Nobody wanted a tablet until Apple introduced the iPad.

Sure, it's this same evolution of devices that encouraged the digital delivery of music, video, games, and books that have killed Best Buy's once thriving physical media categories. However, that would've happened anyway. The problem here is that without Apple's sense of innovation, who will consumers follow as the tech tastemaker of choice?

Best Buy flopped in backing 3-D HDTVs. Do you think that would've happened if Apple had gotten into this market?

Apple has the power to breathe new life into TVs, musical instruments, cameras, and even wristwatches if it chose to go that route. Best Buy would benefit -- initially, at least -- in the revolutions. If Apple is somehow irrelevant, then the whimsy of consumer electronics is as dead as Circuit City.

The world according to bears
There's another problem with matching Apple's decline with Best Buy's ascent, and it's a matter of geography.

Apple is still a very big factor in the United States. Did you see the reports out of the country's two largest wireless carriers? iPhones continue to be the smartphone of choice. Apple's demise has come from sluggish international sales. Outside of the rapidly evolving upper class in China, Apple smartphones have been hard sells throughout Europe and other regions where carriers can't subsidize the iPhone to the point where they are as cheap as high-end Android handsets.

How does this help Best Buy?

Best Buy doesn't have a presence in Europe, where Apple is truly taking a beating. Best Buy's stores are largely here, save for its appliance chain in China. The class act of Cupertino is still a domestic force, and that means that folks will continue to flock to trendy Apple Store locations in lieu of barren Best Buy Mobile shops in desolate strip malls.

Best Buy isn't a phoenix. In mythological terms, it's more in the mold of Icarus. It may seem to be flying, but those wings of feathers and wax will melt just as things start to heat up again.

Ideas beyond Best Buy
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The article Sell Apple, Buy Best Buy? originally appeared on Fool.com.

Longtime Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Apple. The Motley Fool owns shares of Amazon.com, Apple, and RadioShack. The Motley Fool is short RadioShack. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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