Bed Bath & Beyond is in top financial health

Q:With Linens'N Things Inc. liquidating, I would think that the stock of Bed Bath & Beyond Inc. would be up. Why isn't it? -- P.L., via the Internet

Answer: Although the premier home-furnishing retailer has gained market share from the bankruptcy filing of that primary competitor, the deeply discounted closeout at Linens'N Things has had a temporary negative financial effect.

The primary story for all retailers is the poor overall economy and cost-consciousness of consumers. The battered housing market is a drag on this firm's results, because customers tend to splurge on home-related products when they change residences.

Shares of Bed Bath & Beyond (BBBY) are down 15 percent since the end of 2007, following a 23 percent decline in 2006. It has bought back more than 1.2 million common shares in the past three years and recently authorized an additional $1 billion buyback.

Bed Bath & Beyond operates about 1,000 stores in 49 states, Puerto Rico and Canada, as well as a joint venture in Mexico.

Its namesake stores feature branded bed and bath accessories, kitchen textiles and cooking supplies.

The company is in outstanding financial health, with strong cash flow to fund the opening of new stores and no long-term debt. Although it has reduced its expansion plans to 50 or fewer new Bed Bath & Beyond stores this fiscal year because of the economy, it is expected to emerge from the recession in dominant fashion.

Consensus rating of the stock of Bed Bath & Beyond from Wall Street analysts is between "buy" and "hold," according to Thomson Financial. That consists of six "strong buys," three "buys," 10 "holds," one "underperform" and two "sells." Management of Bed Bath & Beyond is stable and experienced.

Another positive is that the firm has yet to tap the potential of the global market. It opened its first international Bed Bath & Beyond store in Canada last year and has entered Mexico. Its merchandise is so basic that it is expected to have worldwide appeal.

Earnings for its fiscal year ending in February are expected to decline 17 percent and are forecast to advance 9 percent in the next fiscal year. The five-year annualized growth forecast for the firm of 12 percent is in line with expectations for the home-furnishing stores industry.

Q:MFS Massachusetts Investors Growth Stock Fund was recommended to me. What is your opinion? -- V.B., via the Internet

Answer: There has been management reshuffling at this fund that is sold by brokers.

Portfolio manager Jeffrey Constantino, who arrived at the fund in November 2006, remains on board, while two other managers who worked with him were taken off the fund in recent months. His philosophy apparently best fits the MFS family's vision of this flagship fund as a conservative large-cap growth offering.

The $2.5 billion MFS Massachusetts Investors Growth Stock Fund "A" (MIGFX) is down 40 percent over the past 12 months and has a three-year annualized decline of 10 percent. Both results place it in the upper one-third of large growth funds.

"I wouldn't recommend this fund right now, though if MFS can sit still and just let Jeff do his work for a while, it might be worth considering," said Hilary Fazzone, analyst with Morningstar Inc. in Chicago. "But the category of large growth funds is very crowded, and there are a lot of good players to choose from."

An ongoing criticism of MFS is that it hasn't had the patience to stick with managers and give time for their decisions to play out, which seems to have been the case with this fund. MFS Massachusetts Investors Growth Stock Fund, which had been losing assets, has seen results improve since Constantino has been with it. He likes market-leading companies in industries with few new entrants.

Q:My adviser suggests that I go with index funds instead of exchange-traded funds. What is the advantage of doing that? -- E.C., via the Internet

Answer: Offered since the 1970s, index funds are typically no-sales-charge mutual funds that mirror a specific index and permit the gradual purchase of additional shares without incurring transaction costs. Prices are set once a day.

ETFs, first made available in 1993, also track indexes. But they are traded on exchanges and require that you pay commissions each time you buy or sell them. Prices change throughout the day.

"If an investor has a large amount to invest all at once, the ETF would be better because it has lower expenses over time and is more tax-efficient than an index fund due to its structure," said Mark Salzinger, publisher and editor of The No-Load Fund Investor in Brentwood, Tenn.

But if you invest on a regular basis, such as monthly or quarterly to dollar-cost-average, the no-load index fund is better because you don't pay a commission every time you buy, he said.

"Those commissions can add up over time and offset the lower expenses and tax efficiency of an ETF," Salzinger said.
Send questions to Andrew Leckey, 555 N. Central Ave., Suite 302, Phoenix, AZ 85004-1248 or .