Lookback: Miller Value Partners 2019 Bed Bath & Beyond (BBBY) Thesis

If you are looking for the best ideas for your portfolio you may want to consider some of Miller Value Partners top stock picks. Miller Value Partners, an investment management firm, is bullish on Bed Bath & Beyond Inc (NASDAQ:BBBY) stock. In its Deep Value Strategies Q3 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Bed Bath & Beyond Inc (NASDAQ:BBBY) stock. Bed Bath & Beyond Inc (NASDAQ:BBBY) is a retail store company.

On October 24, 2019, Miller Value Partners had released its Deep Value Strategies Q3 2019 investor letter. The investment firm said that it added Bed Bath & Beyond Inc (NASDAQ:BBBY) stock to its portfolio in Q3 2019. Bed Bath & Beyond Inc (NASDAQ:BBBY) stock has posted a return of 50.0% in the trailing one year period, outperforming the S&P 500 Index which returned 15.4% in the same period. This suggests that the investment firm was right in its decision.

Miller Deep Value fund posted a return of -6.4% in the third quarter of 2019, underperforming the S&P 500 Index which returned 1.70% in the same quarter. Let’s take a look at comments made by Miller Value Partners about Bed Bath & Beyond Inc (NASDAQ:BBBY) stock in the Q3 2019 investor letter.

“During the past quarter, we also increased our position size in Bed Bath & Beyond (BBBY) as the stock fell below $8, a price last seen in 1997 when revenue was less than $1.5B versus the current $12B. We continue to believe the company presents a very attractive turnaround opportunity. The investment opportunity reminds us a lot of the story of Best Buy (BBY) back in 2011-13. Best Buy’s share price fell nearly 75% back then as the company saw a significant contraction in EBIT margins over a three year period. The marketplace questioned whether the company could compete versus Amazon. A new CEO was successful in stabilizing and improving profitability by undertaking extensive cost-cutting, removing non-core assets, rolling out new online features and implementing significant new supply chain initiatives. Best Buy’s stock price fell to nearly $10 in 2012 only to quickly recover to $40+ by the end of 2013 as signs of the turnaround were making progress. Bed Bath & Beyond has an extensive asset base with significant non-core assets that can be monetized (4.6m owned real estate, Cost Plus World Market, other smaller banners and Personalized Mall), $1B of excess inventory and more than $900M of cash (nearly $8/share) on the balance sheet. Over the past couple of years, nearly $1B has been spent on technology systems designed to enhance every part of the business. With EBIT margins near all-time lows, we see significant opportunity for margin expansion as the company right sizes SG&A, renegotiates 400 expiring leases and begins to roll-out significant new private label products to their store base. The company recently elected 11 new board members who collectively have significant turnaround experience. Over the past week, we were happy to see the company hire a permanent CEO, Mark Triton, the leading merchant at Target. Mark is a 30-year retail veteran and has been very successful at transforming Target’s operations by rolling out new private label initiatives that have been successful in driving accelerating sales trends. While it will likely take some time to see what kind of impact Mark will have on Bed Bath and Beyond, we believe management will continue to move at an accelerated pace and the current share price reflects limited future success in the company’s transformation. With a significant asset and revenues base, we see the potential for future normalized earnings and cash flow to be significantly higher than current levels. At quarter-end, the company’s share price was close to historical trough valuation levels, EV/Revenue <.2x, Price to Cash Flow less than 2x, and a greater than 20% earnings yield.”

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In August 2020, we published an article revealing Miller Value Partners’ bullish investment thesis on Bed Bath & Beyond Inc (NASDAQ:BBBY) stock in its Q2 2020 investor letter. This suggests that the investment firm has been bullish for a long time on Bed Bath & Beyond Inc (NASDAQ:BBBY).

In Q2 2020, the number of bullish hedge fund positions on Bed Bath & Beyond Inc (NASDAQ:BBBY) stock increased by about 18% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in BBBY’s growth potential. Our calculations showed that Bed Bath & Beyond Inc (NASDAQ:BBBY) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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Disclosure: None. This article is originally published at Insider Monkey.