A Good Read on Barnes & Noble

07/30/2015 8:00 am EST

Focus: STOCKS

Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Bookstores aren’t dead yet—or at least this recommended stock isn’t—asserts Mike Cintolo, editor of Cabot Top Ten Trader.

Barnes & Noble (BKS) has been resilient, booking its first full-year profit since 2010 in its recently completed 2015 fiscal year.

Four years ago, when rival Borders shuttered its doors, many declared it was the beginning of the end for bookstores, driven away by Amazon.com and other online book-retailer behemoths.

Ironically, the bookstore chain has survived by becoming much more than a bookstore, branching into toys, games, and electronics such as the Nook e-tablet.

The company has also survived by strategically closing stores and handing Nook production duties over to Samsung, reducing operating losses from $500 million to $86 million in 2015.

Better yet, the company expects earnings per share to increase a whopping 414% in 2016 and another 17% in 2017. But what has really gotten investors’ attention of late is the company’s plans to spin-off a separate college bookstore division this week.

Wall Street loves a spin-off and anticipation for Barnes & Noble’s split has been building for weeks. The company’s college unit has $2 billion in revenue, or about a third of the company’s total sales, but only sells to less than half of all US colleges.

With more schools outsourcing their bookstores, Barnes & Noble believes the unit has plenty of growth potential or at least enough to necessitate a spin-off.

The company also just resumed paying a dividend ($0.15 per quarter, good for a 3% yield) after a five-year hiatus.

BKS has been trending upward since announcing its 2015 fiscal year results in mid-May. The stock jumped from $22 to $26 in a month, pulled back slightly to $25 in late June and kited even higher above $28.

Volume has picked up since the beginning of June and continues to grow along side the anticipation of the upcoming spin-off. You can buy now and set your stop loss near $25, the current 50-day moving average.

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