Stock Duel!

I decided to add another feature to the site called “Stock Duel.” This should be pretty interesting! Every Sunday I will post two possible trades. Your job is to vote on the trade you think is better. I’ll try my best to make both trades good ones, but if you want, please feel free to post your own scenario on the message board. This will be a great opportunity to learn, have fun, and possibly earn money. I’ll keep a tally to see how we do (I got this idea from Sports Center, you know, all those guys who take a side on a prediction of the better team). Here is this week’s Stock Duel!!!…….

Which is the better trade- short sell Game Stop, or buy long Blockbuster Video?
(which stock has a better chance of a successful reversal?)

ARGUMENTS
Choice 1: “Short Sell Game Stop”

It is time for Game Stop to stop! This video game retail store has had a nice run, doubling in one year, and significantly rising since the beginning of 2006 thanks to spoiled little kids having their parents buy them Play Stations, XBox 360s, and Game Cubes for Christmas. But have you been to a GameStop lately? Christmas is longover, buying of games has really slowed down… this stock is seasonal and it is now entering a slow season. I’m not sure if there are enough “strong holders” in this stock, what I perceive is a bunch of traders who will gladly exit the stock after doubling their money. Sell off! Hey, I’m not the only one who thinks shorting GME is a good idea… check out their short interest ratio, it is huge, 10.6!! You got 73.21M shares outstanding, and 11.7M shares short! That’s crazy. But it gets worse… insiders have sold millions of shares in April. The supply is clearly overtaking demand, and competition is getting stiff. This stock has had its run, it is due for a reversal. Those $40 July puts look real good.

Choice 2: Buy Long BBI

Blockbuster got majorly beat down the past few months, dropping as much as 60%. Can we say “value investing” please? This stock is cheap! The market overreacted. Blockbuster Video has promised to turn around and after their lasting earnings report they showed signs they are heading in the right direction: narrowed quarter loss, expanding into online video rentals (Netflix hurt them here, but Blockbuster still has a strong brand name). Even Cramer thinks BBI is a buy, as he pointed out that the closing of Movie Gallery, a significant competitor, will bring BBI back on their feet. Everything that hurt Blockbuster is now out of the way, and the market seems to have picked up on this as we have just witnessed a reversal in the stock breaking support, heading back over $5. Going long BBI is a value play, which makes those $7.50 leaps very attractive for quick in and out double digit gains.

REBUTTALS
Choice 1: Sell short Game Stop
How can you call the top on this stock? It keeps going and going. Besides, a sell off does not guarantee that the stock will drop that far. If you are long Game Stop, why would you want to sell before the release of the Play Station 3, which is projected to be way better in sales than the XBox 360? So far, the technicals are strong.

Choice 2: Buy long Blockbuster Video
Blockbuster’s turnaround story may not have the happy ending investors are looking for. In addition to fixing a battered balance sheet, BBI is up against major industry changes! How much longer will we see people going to Blockbuster to rent movies, when you can get them in the mail through NetFlix. Probably even worse, what happens to BBI’s rental business when people start downloading movies from Google or Itunes at cheaper prices? Maybe BBI will visit chapter 11 once again.

Vote now!

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