Where 'Better Than Feared' Is Tops

 | Apr 11, 2013 | 10:52 AM EDT
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Has it been left for dead? Is it roadkill?

Then maybe we should buy it.

That sums up what I am seeing among retail stocks: Those that had been last are now first.

Take Ross Stores (ROST). It had a couple of tough months and everyone buried the darned thing, even though it is a terrific regional-to-national retailer and it has just the right price points for this economy.

Many analysts deserted it at the bottom. Then, after a monthly number that was "better than feared," the stock roared. The "not as bad as we feared" metric is, at times, more important than "better than expected."

Do you want to know which stock really fits that metric? Consider the curious case of Bed Bath and Beyond (BBBY).

Here's a company that has missed and missed and missed again, even as it has maintained a terrific balance sheet with an immense stock-buyback program and seasoned management. The company has a clear growth path, with 1,000 Bed Baths and room for one-third more. The company has made some fine acquisitions, and it is working to capitalize off of them.

But those quarters? Oh, man, analyst after analyst is blasting the thing and cutting numbers, with the real crescendo selling coming 20 points from the high.

What happens? The company's stock starts percolating after the last weak quarter, and today it explodes higher -- after an initial drop on what looks like a disappointment. Why is it rallying? Simple: It wasn't as weak as feared, even as it caused analysts to trim numbers. The ticket size actually increased, a sign that consumers are really starting to open their wallets. Also, despite aggressive couponing, the company is still on target for long-term growth.

More important, the rap against this company is that it's about to be Amazon'd (AMZN), meaning that people are allegedly using Bed Bath as a showroom before they ultimately buy the products off Amazon.com. I noticed that, now that the stock is rising -- and now that another alleged Amazon showroom stock, Best Buy (BBY), has stopped declining -- we've stopped hearing that chatter about Amazon.

I think that, at a time when stocks like General Mills (GIS) and Eli Lillya (LLY) keep roaring ahead, there is now a drive to find new names -- to find stocks that have been left behind that aren't doing as badly as feared, and to start buying them. That fits Ross and Bed Bath to a T.

Oh, and one more thought: If Bed Bath doesn't increase in price and the cash flow keeps gushing, I think this will be a natural for a private-equity buyout. The company's stock isn't keeping pace with one of the classic retail growth stocks. Why bother dealing with the public bourse when the private market gives the company more of a chance to reformulate and approach the market at a more bountiful and forgiving time?

It's just something to think about if this stock does ever go back to the levels where it was hated by the maximum number of analysts and became a piñata for short sellers everywhere.

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