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By Jason Stipp and Jeremy Glaser | 01-03-2013 04:00 PM

Troubled Pairings?

Cliffs plus ceilings, the Fed plus tightening, and Google plus regulators are just some of the pairings that caught investors' interest this week.

Jason Stipp: I'm Jason Stipp for Morningstar and welcome to the Friday Five. There were signs of troubled pairings in the market this week, maybe even some "gruesome twosomes." Here to offer the details is Morningstar markets editor Jeremy Glaser.

Jeremy, thanks for being here.

Jeremy Glaser: Jason, glad to be back.

Stipp: So, what do you have for the Friday Five this week?

Glaser: Well, we're going to talk about Barnes & Noble, the Fed, the fiscal cliff, Google, and finally a new food combination.

Stipp: So, the first trouble pairing, Barnes & Noble on the new digital world. Perhaps it's not going as well as management would like?

Glaser: Yes, that seems to be the case.

Last week, Barnes & Noble announced that they had sold a 5% stake in their NOOK digital business to Pearson for about $89.5 million, but had also warned that they had missed on sales in the December holiday sales season, and that they were going to be providing more information on that this week. And we got the grim news that they had seen a 12% decline in NOOK sales, that they had only seen a 13% in digital content growth, which is a big deceleration in growth for the company.

And this is really bad news. Barnes & Noble was betting their future on NOOK and betting their future that they'll be able to make that transition from the retail stores--from brick-and-mortar--into selling books, into selling different types of content, to consumers directly through those devices. And some big names like Microsoft, who also has taken a stake in this NOOK business, and Pearson, who publishes a lot of textbooks and other content, think that this is plausible--that they will be able to build an ecosystem that can compete against Amazon, that can compete against Apple.

But it's just not gaining a lot of consumer traction, despite new products, despite pretty well-reviewed products that have been deemed to be fairly well-designed. It's going to take a lot to get people to feel like it's a true competitor to really go out and buy them.

Given that the retail business is not exactly doing great, either, it just means that there is not a lot of excitement there. Our analyst Pete Wahlstrom thinks [Barnes & Noble] shares are about fully valued right now--maybe slightly undervalued--but there are just not a lot of interesting things happening on the investor side, or interesting opportunities for investors in Barnes & Noble right now.

Stipp: One pairing that's definitely unusual and could be troubling to the market is the Fed and a tighter monetary policy. It's not something we've seen for a while, but when the Fed released some information this week, we got a sliver of a hint of what a tighter monetary policy could look like, or at least they are thinking about it?

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