"Street Critique"-Patrick O'Hare, Editor-in-Chief, Briefing.com
Wednesday, May 09, 2007PAUL KANGAS: Tonight's street critique guest writes the bargain hunting column at the financial education website briefing.com. He's also the site's editor in chief. Patrick O'Hare joins us now to talk about the latest stock on his radar, Bed Bath & Beyond. Patrick, welcome to NIGHTLY BUSINESS REPORT.
PATRICK O'HARE, EDITOR-IN-CHIEF, BRIEFING.COM: Thank you, Paul.
KANGAS: Tell me a little about your column.
O'HARE: Yeah, well the bargain hunting column take us in two directions, really. One entails a contrarian approach whereby we look to find stocks that has fallen out of favor with the market for one reason or another and whose risk-reward profile looks relatively attractive for a patient-minded investor. The other approach entails looking for stocks that are cheap relative to their earnings growth prospects. And the price to earnings growth ratio or peg rating as it is also known, is a measure we like to use when we start our research for those types of ideas.
KANGAS: Those are the basic benchmarks that you use when you're looking for stock bargains?
O'HARE: Yes, they're starting points for us that we've found to be very good.
KANGAS: So given that, why are you writing about Bed Bath & Beyond now?
O'HARE: There is a lot of debate surrounding Bed, Bath & Beyond. It was considered one of the great growth companies actually in the late '90s and the early part of this decade.
KANGAS: We do have a five-year chart of the stock. We'll put that up now. We can see it's had a bouncy time of it.
O'HARE: Yeah and you'll also see it really hasn't done much over the last five years. It is up 18 percent in that period, but against the S&P 500 which is up 54 percent over the same length of time, it's been a real source of frustration for investors.
KANGAS: They're about the same level as early 2004 right.
O'HARE: Yeah, they are. But interestingly enough, earnings over that five-year period have compounded at an annual growth rate in excess of 20 percent. So you've seen some multiple compression there that put it on our radar screen as a value-based idea.
KANGAS: In addition to that, rival Linens & Things was taken private by the Apollo Group last year. Do you think there's a chance that Bed Bath & Beyond could be a buyout?
O'HARE: These days there is a chance that any company.
KANGAS: You got that right.
O'HARE: But in the case of Bed, Bath & Beyond, it certainly fits the bill in that respect. It doesn't have any debt. It's got over $3.50 per share in cash on the balance sheet and it is cash-flow positive. So very interesting idea, I would also add that its founders, Warren Eisenberg and Leonard Feinstein great managers in their own right are in their 70's now and may be more receptive to a buyout offer.
KANGAS: What are the big challenges the firm faces now? Incidentally, what kind of a price would you think it would bring on a buyout?
O'HARE: Yeah, well Linens & Things went out at about a 10 percent premium to the price it was trading at the day that the offer was made. Bed Bath & Beyond though, given its strong track record of executing so beautifully on the earnings front, I think the shareholders would be up in arms if it didn't command anywhere say about a 20 percent premium or more on its current price level.
KANGAS: Fair enough. Patrick, do you own the shares of Bed, Bath & Beyond or have any other disclosure to make?
O'HARE: No, I do not, Paul.
KANGAS: OK. Very interesting stuff, Pat, and I thank you very much for being with us.
O'HARE: Thank you.
KANGAS: My guest, Patrick O'Hare, editor in chief at briefing.com.
