Top Stocks Market Report: Bed Bath & Beyond Insider Selling a 'Red Flag'

This Barron's article highlights some pressing concerns for home-goods retailer Bed Bath & Beyond (BBBY: sentiment, chart, options). The company soared past analyst expectations with a stellar fourth-quarter earnings report last week. However, even as the shares climbed more than 20% following the news, BBBY's "two founders and co-chairmen each sold more than $30 million worth of its shares, and three others -- including the chief executive officer --sold more than $15 million worth of options they exercised," Barron's reports. What's more, neither of the 2 founders had sold stock in more than 2 years.

The sales were for "estate-planning purposes," a Bed Bath & Beyond spokesman told Barron's.com in an interview.

Analysts viewed the moves as a "red flag," with Thomas Weisel noting that it was troublesome," particularly after a quarter where they pulled all the stops to beat the numbers." And, although analysts polled by Thomson Reuters tended to boost their price targets following the earnings release, BBBY was downgraded by 2 brokerage firms due to valuation following the stock's resulting surge.

"While there is a lot of potential good news yet with Bed, Bath & Beyond over the next one to two years, we expect the market will increasingly need more information on its newer concepts, which are becoming an increasingly important part of going-forward growth," wrote analysts at SunTrust Robinson Humphrey after downgrading the company to "neutral" from "buy."

Contrarian Takeaway:

You don't have to be a super sleuth to find bearish sentiment toward BBBY, as the stock's indicators are littered with it. Options players heavily favor puts over calls, as the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.87 reveals that these bearishly oriented options nearly double their bullish counterparts in the nearest 3 expiration months. Additionally, this ratio ranks above 81% of all those taken in the past year, underscoring the pessimism oozing from the options pits in regard to BBBY's prospects.

Short sellers are also betting heavily on a decline in the security, as more than 11.5% of the stock's float has been sold short. And, as the article suggests, Wall Street analysts have a particularly high degree of caution when it comes to BBBY. Currently, 12 of the 16 analysts following the shares rate them a "hold" or worse, according to Zacks, while Thomson Reuters reports that the average price target for BBBY rests at $27.73 per share - a discount of more than 13% to the stock's Friday close at $31.37.

The problem for BBBY is that the shares have run smack into some serious technical resistance. First, the equity met with long-term resistance in the 32 region, which is also home to the stock's declining 32-month trendline. Second, BBBY has been unable to hold its perch above the round-number 30 level. This area could now act as a short-term technical hurdle for the security.

Meanwhile, traders should keep a close watch on potential support at the 29 level. This area is home to BBBY's lows following its gap higher on April 9, after the company reported earnings. Should the shares begin to fill in this gap, it could embolden bearish investors to add to their positions, thus creating additional selling pressure for BBBY.
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Highest Option Volume for the Week Ending Monday, April 20, 2009
Ticker Symbol	Call Volume	Put Volume	Total Volume*	Top Stocks Type
Citigroup Inc(C)	1,711,472	1,429,103	3,140,575	Top Stocks
Sel Sec Spdrs Fd Financial(XLF)	731,687	411,243	1,142,930	Best Stock
Spdrs(SPY)	426,045	574,265	1,000,310	Hot Stocks
S&P 500 Index(SPX)	205,360	304,572	509,932	Stocks Market
Nasdaq 100 Index Trckng Stck(QQQQ)	139,675	280,817	420,492	Stock Investment
Bank of America Cp(BAC)	218,269	135,086	353,355	Stock Price
General Electric Co(GE)	154,591	132,636	287,227	Penny Stocks
Ishares Russell 2000 Index(IWM)	154,230	124,910	279,140	Buy Stocks
Wells Fargo & Co(WFC)	112,454	163,105	275,559	Stock Picks
Bb&t Cp(BBT)	37,284	82,591	119,875	Chinese Stocks

Highest Option Volume Compare to Average Volume for Week Ending Monday, April 20, 2009
Ticker Symbol	Call Volume	Put Volume	Total Volume*	5-week Avg Volume	Volume Ratio	Put/Call Ratio
Adtran Inc (ADTN)	18,834	2,680	21,514	5,482	7.03	0.14
E Trade Financial Cp (ETFC)	56,342	11,818	68,160	17,118	4.77	0.21
Huntington Bancshares Inc (HBAN)	32,803	6,622	39,425	10,049	4.95	0.20
Holly Cp (HOC)	15,661	3,793	19,454	5,145	4.13	0.24
Lufkin Industries Inc (LUFK)	4,100	9,231	13,331	3,489	0.44	2.25
Mcmoran Exploration Co (MMR)	2,975	16,518	19,493	5,466	0.18	5.55
The 9 Limited (NCTY)	4,803	30,085	34,888	7,693	0.16	6.26
Nbty Inc (NTY)	12,665	3,923	16,588	4,122	3.23	0.31
Progressive Cp (PGR)	19,157	8,280	27,437	6,872	2.31	0.43
Regions Financial Cp (RF)	103,362	22,857	126,219	31,562	4.52	0.22

 

Outlook: There is a growing movement within the retail sector that can be ignored no longer. While the Retail HOLDRS Trust (RTH) has bested the SPX by more than 8% during the past 60 trading days on a relative-strength basis, specialty retailers within the group have bested the broader market by more than 20% during the same time frame. Companies such as Netflix Inc. (NFLX), Family Dollar Stores, Inc. (FDO), AutoZone Inc. (AZO), Buffalo Wild Wings (BWLD), Panera Bread Company (PNRA), and Amazon.com, Inc. (AMZN) have all appealed to struggling consumers through lower-cost goods and services, as well as product innovation -- think AMZN's Kindle e-book reader. Technically speaking, NFLX and AMZN have both rallied nearly 50% so far in 2009, while FDO and AZO have soared more than 15%. By comparison, the SPX is sitting on a year-to-date loss of 4.2%. Despite this strong technical backdrop, there is a wealth of pessimism levied against these stocks. Specifically, NFLX sports a short-to-float ratio of 36%, while 9 of the 10 analysts following the shares rate them a "hold" or worse. Elsewhere, 31% of BWLD's float is sold short, while 6 of the 11 brokerage firms covering the stock rate it a "hold" or worse. Should this wealth of negativity start to unwind, we could see additional gains from these select names within the retail sector