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Barnes & Noble (NYSE: BKS ) , Blockbuster (OTC BB: BLOKA.PK), and Borders (NYSE: BGP ) -- the Killer B's -- once were high-octane classic Peter Lynch stocks. Admired by consumers, supported by a raft of institutional investors, and demonstrating all the characteristics of a commercial juggernaut, the Killer B's were the stocks to buy in the 1990s. The problem is that none of them owned the core intellectual property that they were selling to consumers. And that IP has moved across technologies and onto devices that are more popular, more convenient, and less expensive.
And so today the Killer B's are dying.
Let's start with Blockbuster. In its last shareholder meeting the company failed to get approval for its reverse stock split and the combination of its A and B shares. Its stock is now trading around $0.12 per share. As I look through the assets of the firm, not only do I see it heading toward bankruptcy this year, but I believe it will be a Chapter 7 liquidation. Blockbuster simply got blown away by Netflix (Nasdaq: NFLX ) and other Internet-centric technologies.
Borders isn't in much better shape. Over the past five years, the stock has fallen from around $25 to around $1.35. In its most recent filing, it disclosed more than $800 million in current liabilities (payables, accrued expenses, and short-term debt) that are only covered by liquid assets if the stated value of its inventory plays out. Alongside that, it reported a $64 million loss for the quarter. This is a business that is going out of business. The only thing that will stop it is a merger.
And that brings us to the Killer B No. 3: Barnes & Noble. While the company is certainly in a stronger position, and may yet find reason to merge with Borders, I see no reason for optimism. Bob Dylan sang what looks true to me about Barnes & Noble, "It's not dark yet, but it's getting there." Margins are narrowing, and there's no plausible argument to support the case for a widening market opportunity going forward. It's going to be tempting for the company's management to play the game as it's been played -- continuing its core retail business and dabbling in new technologies -- but that's not going to be enough. Either Barnes & Noble will find a way to make something truly remarkable out of its retail locations, or those locations will merely be bidding chips in future bankruptcy negotiations.
New technologies like the Kindle, the iPad, and Netflix have drawn all of the intellectual property treasures away from Blockbuster, Borders, and Barnes & Noble. The Killer B's are dying.
Not surprisingly, they have not been, are not, and will not be live recommendations in Motley Fool Stock Advisor, where we have outperformed the market 60% to 0% since 2002. I loved my consumer experiences with them, but their stocks look broken for good.