Bed Bath and Beyond Is a Buy

June 25, 2009

The housing market is slowly emerging from a very long slumber based on new and existing home sale data. Though the results may be artificially inflated by speculators taking advantage of big discounts, the news is most welcome to companies dependent on the housing market for business.

The depth of the recession in the home market has had major ancillary consequences across the entire economy. Those impacted the most include retailers in the home furnishing market.

Companies like Williams Sonoma (WSM), Pier One (PIR), and Bed Bath & Beyond (BBBY) have all seen sales collapse and profits evaporate. A few, like Linens N Things, have actually closed up shop completely during the decline.

It has not been a pretty sight, but in most instances, the best time to buy stocks is when things are dire. The eventual turnaround can bring substantial profits to those willing to take the risk.

Yesterday, after the market closed, Bed Bath & Beyond (BBBY) reported earnings that beat estimates. For the period ending May 30, BBBY generated a profit of $.34 per share. Analysts were expecting a profit of only $.25 per share.

The better than expected results were due mainly to cost-cutting efforts and strong operating performance at both new and existing stores. Same store sales were down 1.6%, but those numbers could have been much worse considering the state of the economy.

Thankfully Bed Bath & Beyond benefited greatly from the closing of Linens N Things. The landscape is similar what transpired with the closing of Circuit City. Rival Best Buy and other discount retail chains picked up the slack.

The biggest benefit of less competition for BBBY comes from the decreased use of coupons used to lure customers into stores. Prices are naturally lower when there is more competition and coupons are a big way to cut those prices. Without the competition, there are fewer coupons.

Fewer coupons reduce expenses at BBBY, providing a big boost to quarterly performance.

Investors are reacting accordingly, sending shares of BBBY higher by more than 6% after the news was released.

The company has navigated the current period quite well. Shares did plummet during the credit crisis last November, but have since recovered most of that lost value. With the current quarter of strong performance, that rally should continue.

Any strength in the housing sector will have a huge impact on BBBY. With a solid base of momentum behind the stock, I would be a buyer. I rate Bed Beth & Beyond a B, or buy.

---

With the market taking us for another wild ride in the last few weeks, many investors are still left scratching their heads. Some people think it's time to start buying in bulk while stocks are cheap, while others are still hiding out with cash. So let Louis Navellier make it easy for you: his FREE special report tells you about his 5 Favorite Stocks to Beat the Market Now!