Skousen says “Buy This Dirt-Cheap, Red Hot Stock Today.”

By Travis Johnson, Stock Gumshoe, January 21, 2010

I haven’t written much about Mark Skousen in recent months — at least partly because he hasn’t been using teaser emails very aggressively, or at least not ads that tease specific picks of his that he thinks will soar.

So I’m delighted to see that he’s returned to tease us again — this time, he’s pushing an ad through as an “Urgent Buy Alert” … here’s how the pitch begins:

“Buy This Dirt-Cheap, Red-Hot Stock TODAY.

“With 48% of its Outstanding Shares Held by Insiders — They MUST See BIG Profits Coming… GET IN NOW!”

The pick is for his Skousen High-Income Alert, and if you subscribe I’m sure he’d be delighted to share it with you … he says he picked it back in November and used some options play that made 71% in 13 days for his subscribers, and that he’s looking to do “even better” this time.

Of course, this is one of the most expensive income letters out there — $995 for a year at the “on sale” price. So if you just want a stock idea, well, your friendly neighborhood Stock Gumshoe is on the case … just read on …

So who is he teasing? Let’s look at the clues:

“Recently, a well-known billionaire began heavily buying this stock to the tune of $90 million. He has purchased so much of this stock that he now owns more than 10% of the company!

“But he’s not the only one. The founder and CEO himself owns more than 16 million shares in his own company. AND… roughly 48% of the outstanding shares of this blockbuster company are owned by various insiders!”

OK, so that’s the insider ownership. How about the valuation and that all-important dividend?

“This stock is dirt-cheap, selling at roughly book value, only 20% of sales, and currently yields 5.5%. In short… this is the ultimate contrarian pick for right now.”

All very good — some more clues to get a bit more specific?

“These huge insider transactions are taking place as the company continues to make big waves in their industry. Already a leader in their field, they’ve just developed a new product that they can’t keep on their shelves because of its explosive demand….

“This company holds many first place titles among their field including being one of the nation’s largest chains with more than 800 stores across the nation and owning one of the most-visited Web sites.

“The stock was recently sold off due to management’s announcement that holiday sales didn’t meet expectations, but don’t expect for that to continue for too much longer.”

OK, that ain’t half bad for a nice meal of teaser clues … throw it all into the mighty, mighty Thinkolator and we can only conclude that this stock is …

Barnes and Noble (BKS)

There are 775 retail stores under the Barnes and Noble umbrella, including their eponymous superstores but also the Bookstar and B. Dalton brands, and they also own and/or manage another 600+ college bookstores, so that’s a match. The shares do have a dividend yield of about 5.4% at the current $18+ price.

And insiders, including the founder of the modern company (not the founders of the original NYC bookstore, who really were named Barnes and Noble), do control the firm with massive ownership — Leonard Riggio owns just under 16 million shares and is by far the largest shareholder, though there are several other officers and boardmembers who each own more than 100,000 shares, including Stephen Riggio. Leonard stepped down as CEO a number of years ago and somewhat controversially passed the CEO seat down to his younger brother, Stephen, but the elder Riggio remains a pretty active Chairman.

It’s worth noting that although there is this massive insider and “beneficial owner” ownership, the insiders have mostly not been buyers on the open market — most of their purchases were classified as “Non open market”, which in many cases means the “purchases” were effectively stock grants from the company, and at least some of the other insider ownership was built through stock options grants. Not that there’s anything wrong with that, but it doesn’t convey the same kind of insider optimism and enthusiasm as would be indicated by the officers and directors going out and buying the stock at the market price with their own money. The last big open-market purchases by insiders were by Leonard Riggio, who bought a couple million shares in Jan-Mar 2008 at much higher prices, in the high $20s and low $30s — over the last few months the real insiders have been doing a lot more selling than buying, though that often doesn’t mean anything specific about the stock or their sentiment (at least, it doesn’t have the predictive power that insider buying does).

The biggest buying pressure lately has been from a large owner, but not an insider — the buyer is Ron Burkle, through his Yucaipa Cos. investment firm, and he now owns almost 6.5 million shares, about 10% of the company and second only to Leonard Riggio. You can see the Barron’s article about his acquisition here if you’re interested — they aren’t agitating much at the moment, but there seems to be the potential that they’ll be pressuring the firm to make some changes. And Burkle seems somewhat concerned about the cozy nature of the acquisition of the formerly stand-alone college bookstore chain that was sold by Leonard Riggio and his wife back to the the company a few months ago.

Short interest is also very high (30% of the float, according to shortsqueeze.com), though the short interest has been coming down lately — perhaps because the stock is off the pre-holiday highs. BKS got to $24 or so around Black Friday, on enthusiasm for the Nook and for general recovery of the consumer, I imagine, before faltering on disappointing holiday sales results.

But to be honest, I hadn’t looked at Barnes and Noble in a long time and I was surprised how healthy the shares looked — they don’t have much debt, and the market cap is down to about $1 billion now, which does mean that they’re getting down close to book value (trading at 1.16X book value right now, according to Yahoo Finance), and the shares trade at a fairly ordinary PE in the mid-teens. Of course, it’s not growing much and had a rough time in the recession, and analysts guess that they’ll grow just 8% a year (revenue peaked in 2004, since which point they’ve remained in the same general range and Amazon’s revenues have tripled) … but I guess I had been half-listening to the disaster that is Borders Group and assuming that Barnes and Noble would be in similarly tough shape — which isn’t true.

Barnes and Noble is far less profitable than Amazon — their operating margin is 3%, Amazon’s is 4.5% — but it is profitable, and they do have a hot product in the Nook e-reader, even if there seems to be some significant risk that the Amazon Kindle has already run away with that market and/or will be fighting it out with Apple’s new whatever-they-call-it, and that the Nook and the other nascent e-book devices might end up as afterthoughts (or Zunes).

And there is that dividend — one of the nice aspects of having a controlling family ownership is that they often keep pressure on to pay a solid dividend, so for now investors are getting $1 a year back in dividends. Coverage of the dividend is a bit iffy at the moment, however — we don’t know what the January quarter earnings will look like, but it accounts for essentially all of the profits in any given year and analysts think that when the fiscal year tallies in April BKS will have earned about 75 cents for this year, and will earn about $1.15 in the year to come. Not unreasonable, perhaps, for this share price, but it makes it tough to justify a $1 annual dividend.

So is this a good one to buy? It’s certainly contrarian — analysts largely tell you to hold or sell this one, and the short interest is huge, so any short term performance would probably come from a surprisingly good earnings release next month and the ensuing short squeeze. Over the long term, they’re in a very competitive business but have shown their ability to manage pretty well and stay competitive. I’d probably be more willing to take a chance on this contrarian pick over what I think is the woefully overvalued Amazon, but, to be honest, I have no personal need to invest in this particular business at all.

So what do you think? Want to follow Mark Skousen into what I expect must be his pick of Barnes and Noble? Like the dividend or the Nook and think it’s really “Red Hot,” or fear the Amazon? Let us know what you think with a comment below.

If you have any experience with Skousen’s High-Income Alert newsletter, please click here to share your opinion — we don’t yet have any reviews of this newsletter, but do have a few reviews in of Skousen’s other titles and the other newsletters published by Eagle Financial, you can see those here.

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18 Comments on "Skousen says “Buy This Dirt-Cheap, Red Hot Stock Today.”"

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Simon
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January 21, 2010 11:31 am

I might be a buyer at about 16.00 (clear 6 month support there), or on a move up with heavy volume. If it does move, it has resistance at about 25.00 so i’d look to get out near there.

Judson Ruhl
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Judson Ruhl
January 21, 2010 11:45 am

7 Reasons You Shouldn’t Miss Out on Brazil’s Boom
Here’s a Brazillian 10 company teaser from Martin Weiss By Rudy Martin that came to my inbox on Jan 7. Ties in to your article above on Brazil
alerts@weissinc.com)
I’m not sure how to send you the link since it’s directed to my hotmail account.

Durwood M. Dugger
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0
January 21, 2010 12:02 pm
From a long term perspective, even with ebooks, book stores are dinosaurs waiting for extinction to take them out all together. I buy my books online and will probably eventually buy ebooks when their price reflects their actual costs and not competing with paper. Even thought I read about 50 books a year. I hadn’t bought a book in a store for more than 5 years until this past Christmas when I bought a dozen or so for my grand kids – all 70% off as the local Border Books went out of business. IMO traditional bricks and mortar bookstores… Read more »
Mark Caley
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Mark Caley
January 21, 2010 12:24 pm

Fabulous new B&N near me is packed ALL the time.

Tom Curtin
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Tom Curtin
January 21, 2010 12:37 pm

I drove by a Barnes and Noble at 9 PM Tuesday night and the parking lot was crowded. For their sake I hope it was buyers, not browsers and coffee drinkers.

Gravity Switch
Admin
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January 21, 2010 12:40 pm

Good comments folks — for what it’s worth, they do also own the cafes inside most of those stores, and one would imagine that they must have higher margins than the 3-4% that you get from bookselling, but perhaps not (SBUX, surprisingly enough, has a pretty tepid profit margin of 4%).

Jianmin Liu
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Jianmin Liu
January 21, 2010 12:43 pm

FYI – Barnes & Noble have been closing out many of their smaller chains.

You can view this as a positive or negative sign of the economy…demand. (In the USA that is).

Steven Torhan
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Steven Torhan
January 21, 2010 3:32 pm

I think Skousen is wrong. I see nothing that compelling about Barnes & Noble.

Peter
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Peter
January 22, 2010 10:05 am

I think AMAZON will kill all these bookstores. Loved a Borders Book Store near me ….used to go in BUY a cup of cofee and read all the magazines and books for free……then If I saw a book I liked . .I would buy it on AMAZON for alot less! Too bad that Borders Store went BELLY UP ! I loved that place!

James
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James
January 22, 2010 7:35 pm

Do we really need another electronic device that either breaks down or loses it charge or any number of other things that happens to these type of devices. I, for one, have not broken a book. Can anyone say that for an electric device? This alone will keep the book industry alove for a while longer.

Robert Cohen of Georgia USA
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Robert Cohen of Georgia USA
January 23, 2010 9:00 pm
Borders is hurting, and as dumbo the contrarian I bought a couple hundred shares at under $1.50 per share last month Here’s how the concerned might square the circle regarding the “obsolete” bookstore chains (Borders etal) At each store, the patrons are offered Borders prospecti, and may directly buy a minimum of 100 shares The idea here is that people are incentivized to be loyal to their local chain bookstore rather than going for the terrific Amazon discount The idea/fear is Borders is going tragically out of business eventually, and so it needs active community(ies) $upport in the hope of… Read more »
Larry
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Larry
January 26, 2010 6:10 pm

Had to make a comment about bookstores becoming extinct.
I’m part owner of a used book bookstore, and a large portion of our sales are online through Amazon. Hmmmmmm.
As an “independent bookstore” we buy back those books you don’t want any longer and re-sell them at a profit. The comment about Amazon being able to remotely remove books from Kindle says it all. Books and bookstores are here to stay for many years.

Gravity Switch
Admin
11
February 22, 2011 10:40 am

Took 'em a year, but they finally suspended that dividend today! Another reminder to be wary of heavily indebted companies that pay dividends their income (or cash flow, at the least) can't easily justify …

Scott Moreland
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Scott Moreland
August 4, 2015 7:46 pm

I received a teaser from Dr. Skousen about a high dividend stock opportunity, Main Street Capital, paying a 6.95% dividend. But their free cash flow is -$2.00. I steer clear of anything below div/FCF of 75%. This is way out of line. 34% of their Free Cash Flow loss was due to their dividend?

stockcrazy10
Irregular
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stockcrazy10
January 21, 2010 12:02 pm

Please forward the email to Travis…

ilovestockspam@gmail.com

EYoung
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EYoung
January 21, 2010 12:09 pm

I would respectfully disagree with this premise, though I can see where you’re coming from. I just can’t see taking a computer to bed to read a book! And to browse in a book store to me is one of life’s greatest pleasures, as there is always something new I hadn’t seen before. You DO have a valid point, but for many many reasons, I pray we never lose the brick-and-mortar stores.

Fox
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Fox
December 15, 2010 4:04 pm

I would – as a short.

Hands
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Hands
January 21, 2010 2:34 pm
Emotionally I agree with you about taking a book to bed but technology inevitably changes things. Take a look at the state of the newspaper industry these days. It seems books and bookstores will be headed in that direction as the next generation grows up with ebook readers and paper books become a novelty. When costs, both hardware and software, come down enough to allow students to have all of their textbooks on their Kindle/Nook/Whatever Is Gonna Win, then you’ll know that if paper books aren’t completely finished, they’re close to it. Having said that, I can also say when… Read more »
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