Against the Grain: Don't Laugh -- Blockbuster Could Be a Trade

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At first glance, Blockbuster (BBI - commentary - Cramer's Take) seems like the last company an investor would want to be involved with. The company is viewed as a mismanaged relic.

In this age of digital downloads and Netflix (NFLX - commentary - Cramer's Take), the video rental business can induce narcolepsy in even the most bullish trader. Blockbuster also may want to buy a company in electronics retailing, a business it knows nothing about and which may be the only industry -- outside of newspapers - that's as lame and dated as its own.

But when investors' eyes glaze with boredom, there might be a counterintuitive opportunity. Despite all the apparent reasons not to buy, Blockbuster might just be a good trade.

First off, it has a large short position -- 50 million shares short, about a third of the float. By itself, this is no reason to buy, though in a market and economy that can't find its way and is prone to lurches, stocks with a large short interest provide good (if aggressive) trading opportunities. Some positive news items could have the shorts covering and running for the hills.

More important, some of the focus of the shorts seems based on the Stone Age nature of the rental business and on John Antioco, the former chairman and CEO, who is best known for lost opportunities and big compensation.

A new CEO, James Keyes, is in town, and though many are questioning his wisdom in regard to the company's interest in Circuit City (CC - commentary - Cramer's Take), at least he is not Antioco, who still seems to make shorts lick their lips.

Dead Circuit

About that Circuit City deal, is it possible that an incredibly misinformed and almost comically dumb idea is better for shareholders than a moderately bad one? While Blockbuster has laid out a proposal for purchasing Circuit City at $6 to $8 a share, the outrage from shareholders and analysts might be enough to kill the deal before it is consummated with a definitive offer. Carl Icahn, a powerful shareholder, is mysteriously in favor of the deal, but with any luck (and a trader would need some luck with this one), he'd be distracted by the Yahoo! (YHOO - commentary - Cramer's Take) battle he has recently joined.

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At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers and a money manager before becoming a journalist who wrote The New York Times' "County Lines" column for six years. He also did back-up beat coverage of The New York Knicks for the paper's Sports section for two seasons and covered other professional and collegiate sports. He has contributed frequently to many of the Times' other sections, including National, Metro, Escapes, Style, Real Estate, Arts & Leisure, Travel, Money & Business, Circuits and the Op-Ed Page. For his "Business Press Maven� column on how business and finance are covered by the media, Fuchs was named best business journalist critic in the nation by the Talking Biz website at The University of North Carolina School of Journalism and Mass Communication. Fuchs is a frequent speaker on the business media, in venues ranging from National Public Radio to the annual conference of the Society of American Business Editors and Writers. Fuchs appreciates your feedback; click here to send him an email.