Here is an email exchange I had with my step father. Note: my mother works as a Bed Bath and Beyond store manager.

Original email back in November:

BBBY is down to 29.5 your thoughts?
-Kevin (11/26/2007)

And then my response:

Short-term BBBY is a damaged stock. Unless they get back above $30 (a 5-year low point), there is more resistance going up than down. It’s likely to either sink to $20 quickly or bounce around $30 for a while. In the latter case, you should get ample notice before it moves back up to $40+.

Earnings growth has slowed (fewer store openings, some management mishaps I think).

Long term, the stock is worth $39-$49. If the price hits $19 or around there is will be a huge value play and you’ll have to buy it. If this is a real bear market, it may go that low and we’ll get a really nice entry on it.

So I would wait for either the technicals to turn around (the MAs, MACD, and Stochastic like in Rule #1) or for Mom to say something spectacular about how the company is doing before their earnings announcement (next one is Jan 3rd) before buying into this stock.

BBBY is kind of a sad story. They have a huge strangle hold on their market of kitchen, bath, and linens, but have been struggling on other fronts. They need to find a way to grow other than opening new stores. That’s probably the biggest thing on investors’ minds. I get mixed signals from Mom on whether the Harmons thing is a + or -.

If you are thinking longer term (like 1-3 years), I might buy 25% here and some more as it creeps down towards $20. When the economy turns around, the stock will take off. There’s just a lot of potential to make money going forward.

– Jason (11/26/2007)

And later I wrote back last week:

The stock got bitch-smacked this week. It’s down to $24. This is like an 8-year low or something. Crazy. I think it could bounce at $20… it could bounce here in just a few days. In any case, I would hold off on making any action in this stock for a bit. The reason is that most analysts still have BBBY as a hold, buy, or strong buy. All these analysts have to now revise their guidance and call BBBY a sell. It’s counter-intuitive (if you liked it at $35, you should like it ore at $25 right?). Well not for analysts, they just need to be able to cover their ass and say they were saying “sell” like everyone else.

Anyway, all these downgrades are going to keep BBBY from moving up and could push it lower. The next level of “support” is around $20.

If you are thinking of investing some more, here is a way to do it. Invest 25-50% now, invest 25% at $20 and then another 25% once it’s “officially turned around”. There’s no risk of the company going bankrupt is there, ma?

This reminds me very much of the Microsoft action a year ago. MSFT was at $30. The company was spending money to get into other markets. Some products slipped launch dates and MSFT simultaneously took a profit hit one quarter and announced they were spending like $3 billion dollars on “non-core” products. The stock slipped to $27, then $24, then $22, and turned around just above $20. It was a 5-7 year low for them too.

Less than one year later, all those investments started to pay off. The slipped products launched and made money. And now MSFT is back up at $35 territory.

Totally different markets and companies, but a good analogy I thought.

So, ma, if you still believe in the company (and now that you’re back to work they should be doing better 😉 and understand how the company is going to continue growing at 15%+ without opening as many new stores, then hold your ground. Since you have so many options, I think the strategy is to hold them and hope the stock turns around.

– Jason (1/4/2008)

p.s. Do you mind if I post these emails on InvestorGeeks?

Disclosure: I do not own any BBBY shares now, but my mother does through an ESPP.

Comments (3)

A little update I guess. BBBY bounced nicely that day it touched $24. It’s now running up against the 10-day moving average at $26.67. I’m guessing it won’t be able break through strongly. The other moving averages are close behind around $30.

I would still wait for the moving averages and other indicators to start trending upwards (positive slope) before putting more money in if you are in this.

And short term, it could still hit 20 as the market continues to slide.

I’d be interested in other folks thoughts on this stock if they follow it or the industry.

Hi, Amy. That sucks. I know that Bed Bath has a VERY liberal return policy.

I’m sure you could go back to the store, say that “everything sticks” and they would in the very least give you a new set of the same cookware. They would probably let you exchange for another brand.

That said, I have a couple of the Emeril pans, and they work great for me. So you might just have a bad set.

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