This morning, I am recommending a bearish trade on Bed Bath & Beyond, Inc. (NASDAQ:BBBY).
BBBY is struggling, and though consumer confidence is still high, I don’t think it will benefit this U.S. retailer.
The company did rise at the end of August on rumors that it hired Goldman Sachs to help it explore acquisition bids, but I don’t think the company is appealing enough to warrant a take over.
In a year where the American consumer has remained consistently confident, BBBY is at its lowest levels since the late 1990s. I don’t see any reason to believe it would be an attractive takeover target.
Consumers are Still Optimistic
The Conference Board, a think tank that releases different economic reports, released its Consumer Confidence Index report for August, and while consumer confidence declined slightly from July, it is still relatively high.
As the report states: “While other parts of the economy may show some weakening, consumers have remained confident and willing to spend.”
We also saw some support for the strength of the consumer in the Bureau of Economic Analysis (BEA)’s Personal Income and Outlays report for July 2019, which was released last week.
Despite lower interest rates, personal income in the U.S. increased, meaning people have more disposable income because their wages are increasing.
But at a time when consumers are strong, BBBY has continued to struggle, as indicated in its chart.
Buyout Rumors are the Only Thing Pushing BBBY Up
As you can see in the chart below, BBBY has been consistently declining since its earnings report in April of 2019. Even in June, when consumer confidence was higher than it is now, the stock was pushing lower.
Daily Chart of Bed Bath & Beyond, Inc. (BBBY) — Chart Source: TradingView
Compared wit the rest of the retail sector, as represented by the SPDR S&P Retail ETF (NYSEARCA:XRT), we can see that BBBY’s technical picture is much weaker
Daily Chart of SPDR S&P Retail ETF (XRT) — Chart Source: TradingView
The acquisition rumors were reported last Thursday, which caused a spike in BBBY’s price. But it will take much more than that for me to be bullish on this underperforming stock. I’m recommending a bearish put option.
Buy to open the Bed Bath & Beyond Inc. (BBBY) Oct. 18th $9 Puts (BBBY191018P00009000) at $1.05 or lower.
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InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.