Two Stocks to Cure the Bernanke Blues

Bed, Bath and Beyond is a great hedge in your portfolio against a precipitous decline in housing. If housing prices were to decline 10%, you would see a marked slowdown in consumer spending on home-related purchases, and likely all purchases. Recent statistics suggest 10% of homeowners are in negative equity situations, meaning if they were to sell their homes, they would receive less than they owe. Some 30% of homeowners have less than 20% equity.

A negative trend in retail spending that comes from a housing decline doesn't seem like much of a stretch to me when you consider home price declines, the 6% commission you have to pay a real estate agent to sell, rising mortgage rates and large numbers of adjustable-rate mortgages outstanding.

Even if housing doesn't collapse, I don't believe there is much risk in being short Bed Bath & Beyond. The company is only expected to grow revenue at a 10% rate next year to $7.3 billion. Yet the company trades at almost 2 times sales and 20 times earnings, which doesn't leave much room for a misstep. If we look at other home-furnishing retailers, you are pretty hard-pressed to find one with a revenue multiple anywhere near 2 times.

Is Bed Bath & Beyond the aberrant retailer that can achieve what others cannot? I really doubt it.

Pier One (PIR Quote) is a lousy company, and Linens and Things is now private, but these companies could never even trade at 1 times sales, let alone 2. It only gets tougher for Bed Bath & Beyond to keep up this performance spread as the market slows and competition intensifies. Look for Bed Bath & Beyond's shares to revisit the low $30s, more in line with industry multiples. The 15% annual revenue growth days are over here.

And now that music selection to accompany you as you make your trades. I am going to throw on some Lamb of God. The new record Sacrament is just about the heaviest thing I have ever heard, but Ashes of the Wake or As the Palaces Burn are awesome as well. Try drumming along with Lamb of God's Chris Adler. This should keep you more than occupied while the market digests some potentially unsettling news.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Hi-Tech Pharma to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.