Made A Valuation-Based Swap

Market Shadows Sold IBM to Pick Up BBBY

When you are fully invested and a too-good-to-miss chance to buy pops up, you need to triage your portfolio. Something must be sold  to raise cash for the new position. With Bed, Bath & Beyond (BBBY) down 9% this morning and on the bargain rack, we jettisoned our 30 shares of IBM @ $180.04 to pick up 97 shares of BBBY @ $55.63.

 

We had accumulated IBM in two stages. One batch of IBM showed a small gain while the other was let go for a slight loss. Include dividends and we’ll cash it a wash. Our bet is that over the long haul the ultra-depressed valuation for BBBY will have reversed more sharply than IBM’s.

That’s been the case previously as Bed, Bath & Beyond has stair-stepped higher after each previous decline. Management still expects that the current fiscal year (ends next February) will come in above $5  per share, an all-time record.

 

Today’s collapse to an intraday low of $54.96 was impossible to catch. We feel lucky to have gotten in well below the old 52-week range despite fiscal Q1 numbers that were within previous guidance and equal to the same period one year earlier, despite numerous headwinds including the Polar Vortex and a 2.9% overall GDP decline. Sales per share were actually higher than they were in 2013′s Q1.

 

We are happy to own a high-quality name at a 31% discount to where the same shares were trading as recently as January this year. BBBY shares have not been available at this low a P/E since the dark days of 2008.

Disclosure: Paul is long BBBY shares amd short BBBY puts in his personal accounts. He added 368 shares today at an average price of $55.62.