Booksellers Need to Find a New Story

On the call, Riggio said the U.S. Census Bureau stated that e-commerce was up 6% in 2006. Barnes & Noble's online business was up a little over 5%. Considering books are the perfect product to buy online (no need to feel it, try it on, see it, etc.), you'd like to see the company's dot-com business performing a lot better.

But what was especially disconcerting was that management had no answers. They blamed the results on a lack of titles that garnered media attention and on discounts to members in the loyalty program for the results.

On the asset side of the ledger, Riggio pointed to its leading brand and strong real estate. Those are true, but not enough to convince me anything is going to change for the better.

Close the Book

Both of these companies are profitable, produce cash flow and have impressive real estate holdings. Naturally, therefore, there has been much speculation regarding leveraged buyouts of either, both or perhaps a merger between the two. The CEOs of each company stated they had no intention of going private and planned to continue operating as a public company.

Of course, their denials mean nothing and considering that activist investor Bill Ackman of Pershing Square Capital owns a sizeable stake in both companies, it's quite possible that they will get sold. However, I don't think it's wise to buy or own stocks in the hopes that the companies get taken out, particularly when business is bad.

Since there are so many good stocks out there, it makes no sense to sit in these two dogs, waiting for a catalyst. I like Borders a slightly more than I like Barnes & Noble, simply because they are being proactive and trying to make some things happen. But that's like saying I like romance novels slightly more than pop-psych self-help books. I don't really want anything to do with either one.