It’s hard to argue the fact that BKS is a cheap stock. It trades with a price/sales of just 0.13 and has lost significant value over the last five years as Amazon.com, Inc. (NASDAQ:AMZN) grows more dominant in the book selling arena. However, this is a stock that is trading with a 60% premium to its 52-week low and continues to see sales decline in the high single digits while operating with a profit margin of (1.52%).
The argument that Microsoft might purchase the company to boost tablet sales might make sense to some. However, consider the fact that Microsoft has its own stores in the best shopping centers throughout the country (many of which are located near a Barnes & Noble). Barnes & Noble displays its own tablets in its own stores, and has been unable to create any real traction in the space. Therefore, why would Microsoft all of a sudden be so successful by acquiring the company? Overall, it makes little sense, and with a declining business combined with a stock that has priced in all potential optimism, I would not chase this rumor.
NuStar Energy L.P. (NYSE:NS)
Shares of NuStar Energy L.P. (NYSE:NS) fell lower by almost 7% on Monday after Credit Suisse downgraded the stock to “Neutral”. The firm cited a potential cut in distribution as the main culprit due to the TexStar termination of the NGL acquisition. The firm believes that this impact from a failed acquisition could once again put shares under pressure.
While energy is not my specialty, the call of the analyst is made from the perspective that this is an overvalued stock. But in fact, this is a stock that has lost 23.5% of its value over the last year and trades with a price/sales of just 0.66 with very low expectations. In fact, during the company’s last quarter it posted revenue of $984.7 million, which beat expectations by more than $180 million. The company also said that it expects improvements from all three of its segments throughout the year. Therefore, the company appears to be performing better than expectations and is expecting to see fundamental improvements in 2013. As a result, I would not make a decision to sell based solely on this analyst’s opinion.
Conclusion
In my book, Taking Charge With Value Investing (McGraw-Hill), I examine human behavior and the psychological effects that take place in the minds of investors when a stock shoots higher or falls drastically lower (think roulette at a casino), with one scenario being after an analyst’s call. For many investors, chasing these trends is common, even addicting, and very few are capable of realizing their losses because of their occasional gain.
Investors need to avoid this behavior after a call, and look not at the performance of the stock but rather the performance of fundamentals. By doing so, you will be able to find the inconsistencies and a distinction between performance and fundamentals, which creates value and allows for large returns.
The article Three Stock-Moving Calls that Make Little Sense originally appeared on Fool.com and is written by Brian Nichols.
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