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‘Hold your nose and buy’ Bed Bath & Beyond on 19% tumble

Buy low, sell high is the old investor adage that pays dividends.

Bed Bath & Beyond shares have tumbled near bear territory, reporting a disappointing third quarter Wednesday night. On Thursday, CNBC’s Jim Cramer said the 19% plunge is warranted, but he deemed it a prime opportunity for investors to “hold your nose and buy” the stock.

“Bed Bath & Beyond had a terrible quarter, but it’s a new CEO and he’s already made some bold moves to turn things around,” the “Mad Money” host said. “Many of those initiatives are already working, despite the stock price decline.”

“This quarter was the last gasp of the old, incompetent management team. Do not let it scare you away from what I think could be a fabulous comeback story,” he said.

Cramer, who turned bullish on ticker BBBY in October when the company announced former Target executive Mark Tritton would be its new president and CEO, said the stock is still a buying opportunity, because turnarounds don’t happen overnight. In May, Steven Temares resigned his CEO and board seats as activist investors sought to shake up the troubled retailer.

Since the announcement of Tritton’s hire, the stock gained almost 68% to $16.65 from under $10 per share. The stock dropped below $14 by Wednesday’s close after the company reported losing 38 cents per share, compared with estimates of a 2 cents per share profit, in the third quarter and pulled its full-year outlook for the 2019 fiscal year. Tritton, who was installed as head Nov. 4, called the results “unsatisfactory.”

Cramer cast it “a kitchen-sink quarter.”

“While the quarter was ugly, upon closer inspection there are some legitimate green shoots that give me confidence in the future that no one talked about today,” he said. “In short, the people dumping this stock down almost 20%, I think they’re making a mistake.”

Cramer is making a bet on leadership’s strategy to turn the chain around. Lacking a strong e-commerce presence, Bed Bath & Beyond has struggled to compete with Amazon, Walmart and Target. Tritton beefed up Target’s online shopping experience as the company’s chief marketing officer, and Cramer believes he can do it again at Bed Bath & Beyond.

However, Bed Bath & Beyond did put on a positive show over the holidays that could be a sign of what’s to come. With a new mass promotions strategy, the retailer managed to grow same-store sales more than 7% from the year prior during the five-day shopping frenzy surrounding Thanksgiving.

“It is unbelievable to me that so many people are overlooking that spectacular number,” Cramer said.

The company, whose 1,500 stores include Buy Buy Baby and Christmas Tree Shops, originally scheduled 60 locations to close in the fiscal year ending February, but pushed back 20 Bed Bath & Beyond store closures to clear out $1 billion of excess inventory.

“Basically they’re clearing the decks of stuff that isn’t selling, and that’s exactly what the textbook says you should do to have a turnaround,” Cramer said.

Furthermore, Bed Bath & Beyond has scaled back its buyback program. Management repurchased $1.2 million worth of shares last quarter after burning billions over the years, which Cramer said was “perfect.” The host was also pleased with its balance sheet.

Cramer suggested that investors buy the stock before Bed Bath & Beyond hosts its investor event later this year.

“Now you need to be in this stock before that because the company was so poorly run that just some basic blocking and tackling from a seasoned pro like Mark can potentially work wonders,” he said. “That event could be the catalyst for much higher prices.”

Disclosure: Cramer’s charitable trust owns shares of Amazon.com.


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