Borders Gains on Gaining an Activist

I'm attending the Value Investing Congress today, but wanted to take a minute to comment on a stock I believe is likely to receive a lot of press in coming days: Borders Group (BGP - commentary - Cramer's Take).

At last year's Congress, Pershing Square Capital manager William Ackman first presented his plan to for McDonald's (MCD - commentary - Cramer's Take) to spin off its company-owned restaurant division and leverage its extensive real estate holdings in order to buy back a significant block of stock.

Activist Ackman went on to make his fight very public, and while McDonald's management originally rebuked his aggressive plans, it did eventually agree to return a large amount of capital to investors in the form of increased dividends and stock buybacks. Even though the stock is up more than 25% since last year, Ackman still is making demands on company management, and recently announced he would add to his McDonald's position.

This morning, Ackman presented his newest idea, Borders. He said Pershing will file a 13-G filing with the SEC to say it owns 11% of the shares of the book retailer. The stock is up 2 points today on the news, recently changing hands around $23.xx. Ackman believes the company could trade up toward $36 a share over the next 18 months.

Borders is on track to generate 98% annual earnings growth in fiscal 2008 (ending January) to $1.14 a share. The company currently trades at 21 times that number, but given Ackman's long-term track record and recent success with McDonald's, it probably wouldn't be wise to bet against him.

In keeping with TSC's editorial policy, Jonathan Edwards doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.

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Jonathan Edwards is a research analyst at TheStreet.com, where he works with Jim Cramer on Action Alerts PLUS. He follows the health care, consumer and financial sectors, with a focus on value stocks. Edwards appreciates your feedback; click here to send him an email.