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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Barnes & Noble

September 6th 2016

Barnes & Noble
NYSE Symbol: BKS
Industry: Book Retailer
Price as of 9/6: $12.66


                The broader market continues to hover near all-time highs even though economic growth seems stagnate around the globe.  Growth stocks year to date have struggled as the income sectors like Telecom, Consumer Staples and Utilities have outperformed. The major averages may not move much in the short term, but we have seen sector rotation since the start of the second half of the year.  The two worst performing sectors, Financials and Healthcare, have caught a bid since July 1st, with both sectors up over 6% in just two short months. I expect this trend to continue. For the rest of the market, most stocks may continue to struggle at least into October ahead of the Presidential election. September is statistically the weakest month of the year, another reason the averages may tread water in the short term. In the current environment, income stocks may provide the best value for now. This week we'll feature a dividend stock with a 5% yield highlighted in Barron's. The stock of the week is Barnes and Noble. 2016 has not been kind to retail in general. Brick and mortar companies and stocks continue to struggle as Amazon continues to innovate and thrive. But one brick and mortar store consumers remain loyal to are the book stores like Barnes and Noble. With interest rates at or near zero, investors have been looking for more income names. If Barnes and Noble can improve sales and earnings going forward, investors will feel more comfortable owning Barnes and Noble and collecting their 5% dividend year and year.

Amazon has definitely made a dent in Barnes and Noble's business.  The stock has been in a trading range for the last seven years as sales and earnings have slowed, but the company remains profitable. E-books were also supposed to be the death of Barnes and Noble, but E-books have plateaued at 15% of the market, another good sign for Barnes and Noble. The company has diversified their business getting a third of their sales from non-book products. Confident in their cash flow, the company initiated a 15 cent a quarter dividend that looks rock solid according to the analyst, Alex Fuhrman at Craig-Hallum.  The balance sheet at Barnes and Noble also looks rock solid with only $40 Million in debt. Private equity or a strategic partner may eventually make a play on Barnes and Noble if the stock remains at these levels.  

Amazon opened their first physical store, another sign that book stores are here to stay. Barnes and Noble sold off on this news last February and sold off again last month when the CEO departed, but the fundamentals, the balance sheet and the 5% dividend should provide limited downside and good upside if Barnes and Noble can grow sales and earnings once again. The analyst at Craig-Hallum has a $17 price target on Barnes and Noble, 34% above current levels. In a market where good valuations are hard to find, Barnes and Nobles looks like good risk reward for income investors.