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TheStreet Open House

Making Money on Bed Bath & Beyond in a Wal-Mart World

Stocks in this article: BBBY WMT

Bargain hunters and short sellers covering positions could push the price up about 30%-50% in relation to the gap down price this week. Looking at the chart, I expect short-term resistance near $63.50 and again at $68. Expect a lot of volume to trade near $60 a share, but also be prepared for bargain hunters to start positions under $60 as an entry. Bed Bath & Beyond doesn't have debt and the price-to-earnings multiple is under 15.

If you are looking for the share-price drop to signal a buying opportunity, you are likely going to find the end of the day Friday or opening on Monday better than Thursday. There is no hurry jumping on board with Bed Bath & Beyond. Stock dumping as a result of lowered guidance normally takes a full two earnings quarters to recover. Take your time and do your homework before allocating capital here. Look for the second break above $70 as the one that "sticks."

Operating margins, while already low compared to Limited and Ross Stores, appear closer to Wal-Mart and Target. Without a strong holiday season, an operating margin drop below the Gap and closer to Aeropostale (ARO) may become a reality.

Want to see a classic "miss" a few weeks after the fact? Take a look at Dell (DELL). The computer maker disappointed and traded from $15 down to an intraday low of $12.31. Also, take close note of the next few days after earnings. This is a pattern I see often, and you can too. Simply use your software to look at charts from the past few quarters and review the ones that gapped down the next day. The high placed a couple of days after the gap down in Dell is now resistance.

Pandora (another earnings disappointer) also took more than two months in recovery to reach the gap down price. Pandora, like Dell, will take about six months to trade again at pre-gap pricing, if the next two reports are favorably received by investors. I love listening to Pandora; but I am not ready to invest just yet.

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