Question:
What is your opinion on BBBY?
Answer:
Bed Bath & Beyond, Inc. (NASDAQ: BBBY) operates one of the largest U.S. chains of superstores selling domestics merchandise and home furnishings. The company operates more than 993 stores across the United States and Canada. Recently, BBBY acquired Cost Plus World Market and Linen Holdings. Cost Plus World Market stores feature home décor, housewares, gifts, jewelry, and decorative accessories, in addition to international wines, gourmet foods and beverages. Linen Holdings is a distributor of bath, bed and table linens and other textile products to customers in the hospitality, cruise line, food service, healthcare and other industries.
Shares of BBBY fell more than 10% following a recent earnings miss in September 2012. The company attributed the miss to higher than expected costs associated with the closing of the Cost Plus deal. The stock has returned 6.76% year-to-date, which trails both the consumer discretionary sector and the S&P 500 Index as a whole. We believe, however, that the renewed expectations for the fourth quarter are back in line with what the company can achieve. The stocks’ shares trade at 14.5 times earnings, which is a discount to the consumer discretionary sector, which trades at 18 times earnings. Additionally, shares are also at a discount compared to its three-year and five-year price to earnings ratios, which leads us to believe that the stock has price appreciation potential. The company also has no debt.
There is some concern on whether this is a big-box retailer that will be hurt by online superstores like Amazon.com. We feel BBBY will have to price their merchandise reasonably to remain competitive, as consumers are looking for value. The Bed Bath & Beyond stores may have an advantage, as many of the high-end products they carry are items that consumers want to touch and feel before they buy. Moreover, what appears to be a stabilizing housing market could prove to be favorable for Bed Bath & Beyond, as new home buyers will likely need to furnish their home with products.
Question:
I remember years ago when you liked Diebold. My sister recently bought some shares. I wanted to get your opinion if it is a company worth looking into again.
Answer:
Diebold, Inc. (NYSE: DBD) provides integrated self-service delivery and security systems and services to the financial, commercial, government and retail markets. The company manufactures and services bank ATMs. We held the company in our Traditional Portfolio for several years. However, in 2007, the company failed to report earnings, and then went two to three years without offering an official financial statement.
We sold Diebold when United Technologies Corp. (NYSE: UTX) put a bid out for the company and shares escalated 30% to 40%. Within a few months the UTX offer fell apart. Once we sold our position, we haven’t followed the company much since.
Our initial thought on Diebold is that there is no growth in banking in the United States. The company has potential in international and emerging markets. Currently, 50% of the company’s total sales are from international markets. We recommend holding off on this company. We have strong reservation on any company that cannot provide their financial statements to the Securities and Exchange Commission (SEC).
Question:
My broker recommended some stocks that were “pink sheet” stocks. Some are names I’ve heard of like Zurich Insurance Group Ltd. (ADR)—to name one off the top of my head. Just because it’s not on a major exchange—is that reason to steer clear?
Answer:
First let’s address your question on pink sheet stocks. “Pink sheets” refers to the daily publication compiled by the National Quotation Bureau with bid and ask prices of over-the-counter (OTC) stocks. OTC companies do not need to meet minimum requirements or file with the SEC.
One of the biggest pitfalls of OTC stocks is liquidity. Many of these stocks do not have the ability to sell without affecting the price of a stock. If you need to sell, you may find doing so forces prices lower. Also, many of the stocks sold over-the-counter are small and unmonitored by analysts. This is a dual-edged sword, in that there is potential for outsized gains; however, investors are also less likely to recognize problems that could cause the company to go out of business.
We recommend generally avoiding small OTC companies, especially those with small prices. Investing can involve complex decisions, so we recommend heeding the advice of Warren Buffet and invest in what you know.
In the specific case of Swiss-based company Zurich Insurance Group, (PINK: ZURVY), the company sells shares as American Depositary Receipts, which is how foreign companies sell on American exchanges. This particular company is not one of the small, pink-sheet companies, as it has a $37.8 billion market capitalization and is the sixth largest company on the Swiss stock market.
Since this company is a relatively large insurance company, you can evaluate it on its fundamentals—not something you can do with most OTC stocks. The company operates in Switzerland, which often has a negative correlation to the U.S. dollar. It has a beta 1.16, so it is a little more volatile than the market. However, the stock acts like a domestic financial company, with a correlation .978, which is higher than its correlation to the overall Swiss stock market. It is not ideal as a foreign investment because it trades so closely to the U.S. financial sector. But, the company has exposure to Swiss Franc. When that currency appreciates, Zurich operations increase. As a life insurer, the stock also has a close correlation to interest rates.
At Henssler Financial we believe you should Live Ready, which includes understanding the fundamentals of the companies whose stock you own. If you have questions regarding your portfolio holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
