Best Buy Co., Inc. (BBY), Medtronic, Inc. (MDT), Saks Inc (SKS): Are These Tuesday Post-Earning Movers a Buy?

My single concern is not the company’s valuation, but rather its margins. Saks Inc (NYSE:SKS)’ net margin of just 2% is especially low; the company must figure a way to increase profitability. Hopefully, the growth of online retail will help it expand that margin. Combined with new initiatives to maximize store space, that improvement could bode well for the company. As a result, I like the direction of the company and believe that it is worth additional due diligence.

Mixed Quarter Produces Solid Gains

Rexnord Corp (NYSE:RXN) rallied 5% on Tuesday after posting a mixed quarter and issuing a downbeat Q2 forecast. The stock’s gains came after the company issued longer-term guidance, suggesting growth of 1%-3% in 2013. For eager investors, the promise of future improvements apparently overshadowed Rexnord Corp (NYSE:RXN)’s immediate fundamental weakness.

Rexnord Corp (NYSE:RXN) is not cheap — it trades at 0.90 times sales with a forward P/E ratio of 17.0. Compared to the industrial industry, Rexnord’s valuation is a 20% premium based on future earnings alone.

While the company is bullish of its own future, I am not so optimistic on its outlook.  Rexnord is a multi-platform industrial company with segments in process & motion control and water management. The company announced that it is still reviewing a strategic plan that could involve selling one of the two large segments. Therefore, I find its long-term guidance difficult to assess.

With this unknown future — and a mixed report — I am not buying the idea of long-term guidance.

Conclusion

Looking at my three preferred stocks from this list, I think Saks presents the most upside potential. Medtronic, Inc. (NYSE:MDT) is a great and balanced company, but is not producing explosive growth.

Best Buy Co., Inc. (NYSE:BBY) is cheap but is producing no growth. Its upside is tied to the unknown success of its “store-in-store” strategy, and also the outcome of online sales tax.

Saks Inc (NYSE:SKS) is cheap, growing, and is launching a larger scale online segment. In my opinion, it presents the greatest combination of value and upside to make it the most compelling of the three.

The article Are These Tuesday Post-Earning Movers a Buy? originally appeared on Fool.com and is written by Brian Nichols.

Brian Nichols is long BBY. The Motley Fool owns shares of Medtronic. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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