BEHIND THE NEWS: Is it time for investors to bite on Steak n Shake?

It takes courage, but sometimes the best time to invest in a stock is when almost no one else is.

That strategy paid off royally with Finish Line Inc., whose shares are up 180 percent this year. Now, is the time right to dive into The Steak n Shake Co.?

To be sure, naysayers can find plenty of reasons to steer clear of Steak n Shake, which helps explain why shortsellers-investors who make their money when shares fall-have flocked to the stock in recent months.

Ten straight quarters of declining same-store sales don’t do much to engender confidence. Nor does the fact that the company has been without a permanent CEO since August, when Peter Dunn resigned. On top of all that, there’s dissension on the board, with two of the nine slots held by representatives of a Texasbased investor group pushing to overhaul the company.

But perhaps the risks already are priced into Steak n Shake shares, which have fallen 57 percent since August and now trade for about $7.65 apiece.

One group of investors now has an appetite for the shares. They are a top pick of Motley Fool CAPS’ all-stars-a group that includes the best-performing 20 percent of the 96,000 professional and novice investors who participate in the online community.

Here’s why they say the company could be a gem:

It may get back on track after it hires a new CEO.

It has “hidden real estate value”- in other words, lots of company-owned locations with substantial value.

Its format-a 1950s diner concept-is relatively free of competitors, unlike many other segments of the restaurant industry.

The dissident group, led by newly elected board member Sardar Biglari, will use its influence to create shareholder value.

Indeed, if you look beyond immediate challenges-such as the slumping economy and the need to fix operational woes-long-term prospects are positive, added David Tarantino, an analyst with Robert W. Baird & Co.

Steak n Shake’s 503 restaurants are in just 21 states. In fact, more than 40 percent of sales come from just five markets-Indianapolis, St. Louis, Chicago, Orlando and Tampa. If the company can get existing restaurants humming, it can march into uncharted markets for years to come.

“We see opportunity for thousands of U.S. locations,” Tarantino said in a report.

Still, Tarantino isn’t yet bullish on Steak n Shake. He rates the stock neutral, in part because the company has a long way to go before it’s ready to rev up its expansion aspirations.

He’s right about that. So investing now is a classic contrarian bet. But so was pouring money into Finish Line during its darkest days early this year. Back in January, the company appeared trapped into completing its $1.5 billion purchase of Tennessee-based Genesco Inc. The deal, negotiated last June in a far brighter economic and credit climate, had turned potentially ruinous.

Finish Line traded for as little as $1.48 a share in early January. But the stock has been on the upswing since early March, when the company and its financial backer, Swiss-based UBS, extricated themselves from the mess by negotiating a $175 million cash settlement that canceled the deal. Finish Line’s share of the settlement was $39 million; it also gave Genesco 6.5 million Finish Line shares.

With the nightmare over, investors have charged back. Finish Line was the topperforming stock on Wall Street in the first quarter, advancing 98 percent. It’s continued to climb since and now fetches about $6.65.

Endowment sticks with stock

Lilly Endowment Inc.’s announcement in July 2006 that it would begin diversifying out of Eli Lilly and Co. stock drew big headlines, and rightfully so. Since its founding in 1937 by members of the Lilly family, the endowment held nearly all its assets in the stock of the pharmaceutical company.

At the time, endowment Chairman Thomas Lofton said that, while “there is wisdom in embarking on some level of diversification,” the change would be gradual and the endowment would continue to own Lilly shares.

True enough. Eli Lilly’s recently released proxy shows the endowment still owns 137.5 million company shares, or 12.1 percent of the total. A year earlier, it owned 140.4 million. And when diversification began, it owned 147.6 million.

The endowment’s concentration in Lilly shares has long been controversial, serving it well during Lilly’s boom years, but hurting it badly as the stock swooned over the past eight years.

Living large in the big city

When Zionsville’s Jim Cornelius moved to New York City to lead Bristol-Myers Squibb in the fall of 2006, he didn’t exactly hole up in a Motel 6.

Bristol-Myers’ proxy statement shows the company put him up in an apartment with rent of $25,500 per month. He spent eight months in the apartment in 2007, costing Bristol-Myers Squibb $204,000.

The company also picked up the $1,181 electric bill for that period.