As we neared 2021 in late December, some of us were on the hunt for the best stock of the upcoming year. For my pick, I cast my vote for Bed Bath & Beyond (NASDAQ:BBBY), which was not a name I was expecting to go with a few quarters ago. BBBY stock has struggled for years, so what would make it so special this year?
The novel coronavirus punished retailers, but not indiscriminately. Some retailers — those deemed essential or with strong consumer brands — did quite well. You know, the Costco (NASDAQ:COST), Target (NYSE:TGT) and Lululemon Athletica’s (NASDAQ:LULU) of the world.
Others didn’t fare quite as well, and my assumption was that BBBY stock would be among this group.
Shares were pummeled, falling from almost $18 per share in December 2019 to a low near $3.50 in March 2020. Good for an 80% decline in that span, the market also thought Bed Bath & Beyond was finished.
Bed Bath & Beyond Reimagined
I picked Bed Bath & Beyond as my top 2021 pick because of the changes that management is making with the company.
The retailer has been shedding underperforming brands and is pivoting to an e-commerce and omni-channel operation. It’s also using online sales in combination with curbside pickup and other methods to help drive sales and engagement.
To aid in that movement, the company recently hired two new executives, one from Walmart (NYSE:WMT) and another from Wayfair (NYSE:W). Hopefully they will be able to accelerate Bed Bath & Beyond’s new strategies.
On top of that, it’s quickly pivoting the financials. Bed Bath & Beyond swung to cash flow positive and has been generating a profit. It was able to clean up its balance sheet too. And finally, it initiated an accelerated buyback plan. In the most recent quarter, the company announced this:
Total share repurchase program increases to up to $825 million from up to $675 million; $375 million in total ASR expected to be completed by end of the fourth quarter of fiscal 2020, on or before Feb. 27, 2021.
This is important. Not only is $825 million a fairly significant chunk of change vs. the retailer’s market capitalization of $3.5 billion, but BBBY stock still has 22% of its float sold short. In other words, we have a retailer that:
- Is pivoting to e-commerce and omni-channel, not going extinct.
- Has turned its financials around and is cash flow positive.
- Is Shedding underperforming brands and investing in winning strategies.
- Is Initiating a large buyback program while having a high short interest.
BBBY Stock and the Reddit Bandits
Click to Enlarge
Source: Chart courtesy of TrendSpider
The short float and buyback help explain some of the wild action we’ve seen in BBBY stock earlier this year. I have been bullish on this name since late December, around the time when the first part of this series — the Best Stock Picks for 2021 — began.
There were short squeezes across the board and BBBY stock was involved in the madness, ultimately topping $50. That was up roughly 200% from our initial buy-in price. Unfortunately, we have to do more than make it through January — we have to make it through the whole year.
For now, though, BBBY stock continues to hold up well. After that major spike, bulls haven’t been able to take Bed Bath higher. However, the stock has done a good job consolidating above its prior 2020 highs.
For now, let’s see if this stock can regain its upside momentum and squeeze higher. A move over $33 could get the action started.
On the date of publication, Bret Kenwell held a long position in BBBY.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.