Barnes & Noble (BKS): Big Money Bets On Bookseller

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Jan 30, 2009
"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," says Mark Skousen.

In his top notch speciality service, High Income Alert, the advisor says, "Now, a billionaire has also taken a stake." Here's the advisor's update.

"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, 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. But bestsellers account for only 3% of Barnes & Nobles 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, a private equity firm controlled by billionaire Ron Burkle. Two weeks ago he announced he had acquired an 8.3% stake in the company, saying he believes it is 'undervalued.'

"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."

Thursday, 29 January 2009

Steven Halpern