MAIN NEWS HEADLINES
February 5 – February 12, 2009 Edition
Big Money Bets
Barnes & Noble
“recommending” that investors buy Barnes & Noble Inc. stock. The advisory came last week following billionaire Ron Burkle’s recent purchase of an 8.3% stake in the huge bookseller.
Yucaipa Cos, a private equity firm controlled by Burkle, acquired the stock on his assessment that the company has been way “undervalued.”
Already, the Stock Advisors site-citing a report from High Income Alert advisor Mark Skousen, is recommending investors buy B&N shares. In the report, Skousen said: “Last spring, CEO Leonard Riggio of Barnes & Noble (NYSE: BKS) purchased almost $50 million-worth of his company’s stock between $27-29.50; today, it languishes on the remainder table at $17.56. Now, a billionaire has also taken a stake.Barnes & Noble is a worthy addition to our model portfolio. Trading well below the level that the CEO purchased shares, we consider the stock a bargain.”
Barnes & Noble owns the nation’s largest chain of bookstores, with 800 stores in 50 states. It also owns one of the Web’s most-visited Web sites, bn.com. Between its stores and Web site, Barnes and Noble sells more than 300 million books a year.
“Of course, profit margins in bookselling are thin and the competition is intense, especially in the bestseller category,” noted Skousen. “But bestsellers account for only 3% of Barnes & Noble sales. Every day, the company fulfills an average of 4,000 customer service requests. It takes more than 8 million special orders a year.
“Barnes & Noble also is the nation’s second-largest coffeehouse and a leading book publisher. Its Barnes & Noble Classics, for example, sold more than 500,000 units in its first year of publication.
“Five years ago, it also acquired Sterling Publishing, a leading publisher of books for enthusiasts (including cooking, home design, health and how-to.)
“Retailing is going through a tough time right now. But consumers are more likely to give up buying diamond earrings, boats and expensive fitness equipment than books, DVDs and CDs.
“Meanwhile, the stock is almost ridiculously cheap, selling at just 9 times earnings and less than 20% of sales. Plus, the stock is yielding 5.6% at these levels.
This has attracted the attention of Yucaipa Cos. Skousen noted. “I agree and believe we should follow in Burkle and Riggio’s footsteps. We recommending buying the shares at market, and placing a protective stop at 14.50. If you prefer to play this one more aggressively, try the April $20 calls.”