Send me real-time posts from this site at my email
Motley Fool

Why Bed Bath & Beyond Stock Popped Again Today

What happened

Bad news for Bed Bath & Beyond (NASDAQ: BBBY) shareholders: This morning, two separate Wall Street banks downgraded the stock, with Raymond James cutting its rating from strong buy to merely market perform (i.e., neutral), and Swiss banker UBS cutting the stock from neutral to sell.

Good news for Bed Bath & Beyond investors: No one cares. Bed Bath stock is up a stellar 13.8% as of 2 p.m. EST.

Image source: Getty Images.

So what

This isn't the way Wall Street downgrades ordinarily work.

Hearing an investment bank like Raymond James declaring Bed Bath & Beyond's valuation "stretched" (reports TheFly.com), or hearing UBS warn of the company's "deep" challenges that "will take time to fix" in the midst of a recession that has people spending less on home goods and furnishings, ordinarily sends investors running for the hills. Hearing UBS proceed to recommend investors sell immediately and take their profits would ordinarily provide an additional kick in the pants.

That's not the way things are working out today, though, and the reason, explains yet a third investment bank -- KeyBanc this time -- is that "the Reddit message board WallStreetBets" has been encouraging momentum traders to buy shares of heavily shorted stocks such as Bed Bath & Beyond, in hopes of starting a short squeeze phenomenon that will drive the stocks higher regardless of merit.

Now what

And it seems to be working. We've already seen how the WallStreetBets, aka "WSB," phenomenon can push a heavily shorted, terminally ill mall-based retailer like GameStop (NYSE: GME) stock dramatically higher in a short period of time. (GameStop's up another 53% today, by the way, although the chances that its business got 53% better overnight are pretty much nil.)

Something similar seems to be happening at profitless space tourism company Virgin Galactic Holdings (NYSE: SPCE), which is up nearly 20%. Clearly, there's something to the idea of squeezing the same Wall Street banks, which are panning your stock, by buying it anyway.

That doesn't mean the banks are wrong, though -- just early. The risk is still there, even if the momentum traders haven't noticed it yet.

10 stocks we like better than Bed Bath & Beyond
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Bed Bath & Beyond wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of November 20, 2020

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Virgin Galactic Holdings Inc. The Motley Fool has a disclosure policy.


Source

Popular posts

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue