Don't own Office Depot? Don't start now

Starboard's stake in the big-box retailer is useful only to traders, not long-term value investors.

By InvestorPlace Sep 18, 2012 8:34AM

Office equipment, Image Source/Getty ImagesBy Dan Burrows

iplogoSo that's why beleaguered Office Depot's (ODP) stock is up 40% in the past week and about 73% in just September alone. Activist fund Starboard Value on Monday disclosed that it has built a 13.3% stake in the struggling retailer and intends to hold management's feet to the fire.

You might remember Starboard from some recent high-profile activism in AOL (AOL). The fund ultimately lost that proxy contest, but it's pretty clear that the pressure it brought to bear helped spur AOL to sell a billion-dollar patent portfolio to Microsoft (MSFT). (Microsoft owns and publishes Top Stocks, an MSN Money site.)

No, Starboard didn't change anything fundamental at AOL, but rattling that cage helped the struggling Internet company's stock more than double so far this year.

That explains why the market is so hot on ODP, which popped an additional 7% Monday after Starboard disclosed its stake.

Starboard says ODP is deeply undervalued (even by the miserable standards of the big-box office retail sector) and is urging it to slash costs and move to selling higher-margin products.

If only it were that simple.

As we noted recently, competition from Wal-Mart (WMT) and Amazon (AMZN) is hurting Staples (SPLS), Office Depot and OfficeMax (OMX) in much the same way it's crippling Best Buy (BBY).

Moreover, the awful economies here and abroad -- and massive losses of government jobs at the local, state and federal levels -- have made the business of big-box office supply retailers tougher than ever.

That has shares reeling -- and left them vulnerable to activist investors like Starboard and perhaps private-equity firms, too. Staples has gotten a recent bump from rumors that Bain Capital is kicking the tires on a take-out, notes InvestorPlace assistant editor Marc Bastow.

And just like that, the big-box office retailers are in play.

Hey, that's great if you're a professional trader -- and perhaps of solace to any long-suffering shareholder looking to exit at a profit.

But for long-term value investors, all this Wall Street heat and light is largely immaterial. The macro and company-specific fundamentals haven't changed a whit.

There's a huge difference between trading and investing. If you don't own Office Depot, Staples or OfficeMax, don't start now.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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