Hitting Bottom is a "Good Thing" for Martha Stewart Living

With insider trading charges now ancient history, Martha Stewart is in the news again. But her woes can't really get any worse, and that's "a good thing" for shares of Martha Stewart Living Omnimedia's (MSO) that have fallen to a three-year low.

On Monday, The New York Post reported that Stewart has been annoyed that Kmart isn't doing a good job of selling Martha Stewart towels, and garden equipment in its stores. Sales there have been downright disappointing though investors probably haven't noticed because they gave up long ago. But there is some reason to be optimistic. Even though, as has been rumored, the brand may be parting ways with Kmart, the Martha Stewart Collection of home products will now be sold exclusively at Macy's, which is a much classier retailer, and probably a better fit for the brand.

An earnings bottom may also be in store. The company recently reported quarterly earnings guidance that was in line with estimates, maintained its full year guidance, and are expecting a return to profitability, and strong second half sales. After a 47% decline since July, the stock should see a short-term pop on a Bear Stearns (BSC) upgrade, and as some short covering comes into play. The stock is a heavily shorted name, with 7.3 million shares short, or nearly a third of the publicly traded float.

MSO 1-yr chart: