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Topic: Growth Stocks

Borders Group Inc. $22 – New York symbol BGP

BORDERS GROUP INC. $22 (New York symbol BGP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 59.4 million; Market cap: $1.3 billion; WSSF Rating: Average) is the nation’s second-largest bookseller, with 473 superstores and 678 mall-based stores. It also has 55 stores overseas, mostly in the UK.

Overall sales grew 3.5% during Christmas. But on a same-store basis, sales fell 1.9% at its U.S. superstores, and 6.3% at the mall stores. The lower sales growth probably cut the company’s fiscal 2007 profit to $0.50 a share from $1.42 a year earlier. The stock trades at 44.0 times that estimate.

The lower earnings also reflect the start-up costs of a new loyalty card program. The company has signed up 14 million members, but this does not appear to have raised sales so far. Store renovations have also hurt earnings. But these initiatives should improve customer satisfaction, and encourage more return visits.

Like Barnes & Noble, Borders has moved up on takeover speculation. Insiders control just 12% of the shares, so there’s a better chance of an offer succeeding. The $0.44 dividend seems safe, and yields 2.0%.

Borders is a buy.

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