This Week's 5 Dumbest Stock Moves

Stupidity is contagious. It gets us all from time to time. Even respectable companies can catch it. As I do every week, let's look at five dumb financial events this week that may make your head spin.

1. Pride and price points
Best Buy (NYSE: BBY  ) blundered on Sunday, when a few of its stores promoted Palm (Nasdaq: PALM  ) Pre phones at just $99 with a two-year contract. The Pre hit the market last month at twice that price.

If you think it's a little too early in the product cycle for a 50% haircut, you're right. The sale price was a mistake, and Best Buy quickly owned up to it and will probably eat the cost. Sprint is already subsidizing the price of the Pre, so Palm isn't going to pay for Best Buy's boneheaded move.

Or will it? Now that the market has seen the $99 price point, how long can Palm stick to its $199 sticker? Smartphones from the larger iPhone and BlackBerry camps are already available at lower price points. A price cut is inevitable, but now Palm may get a chilly reception at the $199 mark.

2. Start bleeding purple
Yahoo! (Nasdaq: YHOO  ) has had enough. It's letting Microsoft (Nasdaq: MSFT  ) sell paid-search ads on its namesake engine; in exchange, Yahoo! gets the lion's share of the generated revenue. Microsoft's Bing will also power Yahoo.com queries.

Yahoo! claims that the deal will result in a $500 million boost to operating profits, but investors know better. They rightfully sent the stock down 12% when the deal was announced on Wednesday, because a naked Yahoo! can't hide behind big numbers.

This is a major blunder by the fading dot-com titan. What will happen when folks see Microsoft ads and Bing-fueled results on Yahoo!? Won't they just go directly to Bing the next time they're searching for something? This is a 10-year deal, but it won't take that long for Yahoo! to become the next AOL.

A decade ago, that would have been a compliment. See, a lot can happen in 10 years.

3. This is why the running man runs
Speaking of AOL, Google (Nasdaq: GOOG  ) sold its 5% stake in the former online giant for $283 million. The sale clears the way for a complete spinoff of America Online later this year. Google makes a rare appearance in this weekly column, having paid a cool $1 billion for that 5% stake four years ago.

Google can't win them all, but it's been a pretty lousy investor. A year after it acquired a 5% stake in AOL, it sold its 2.3% stake in Baidu (Nasdaq: BIDU  ) at $80 a share. So it held on to AOL until it was worth roughly a quarter of its investment. In the meantime, Baidu has gone on to more than quadruple since Google bailed on China's leading search engine.

4. Microsoft merely scratches the Surface
Microsoft began accepting submissions for its Windows Marketplace for Mobile this week. Yes! In a single week, Mr. Softy tricks Yahoo! into handing over the keys, then sets its sights on squashing the App Store.

Well, not so fast. Microsoft has a long way to go before being taken seriously here. If it wants to woo developers, it needs to offer attractive door prizes. So what's Microsoft offering? Well, the top submission in each of four categories will win a Microsoft Surface unit.

Don't get me wrong. Surface is cool. It's a touch-screen computing device in the form of a table. It retails for several thousands of dollars. However, Google is waving a cool $250,000 cash prize for the top Android-flavored app submitted next month.

Now isn't the time for Mr. Softy to be cheap. Then again, at least it's not giving away first-generation Zune devices.

5. Misreading the green tea leaves in China
Chinese new-media star Sohu.com (Nasdaq: SOHU  ) did everything right in its latest quarter. Revenue soared 25%. Earnings topped analyst expectations for the ninth consecutive quarter.

The stock tanked on the news.

It wasn't a matter of selling on the news or even the stock's valuation. Sohu's earnings multiple is merely in the mid-teens.

No, what sent the Chinese company in the wrong direction is the revelation that a pair of upcoming online games was being delayed. Video game postponements happen often, and China's online gaming market has given an unusually long shelf life to the country's more popular multiplayer role-playing games.

Besides, online gaming revenue at Sohu soared by 39% during the quarter, so it's not as if it's starving for a catalyst out of its pipeline. Wall Street got this one wrong, because sometimes even Mr. Market can be a dummy.

Let's beat the Dumb Drum:

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Baidu, Google, and Sohu.com are Motley Fool Rule Breakers recommendations. Best Buy is a Motley Fool Stock Advisor recommendation. Best Buy and Microsoft are Motley Fool Inside Value selections. The Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days. That certainly wouldn't be a dumb move.

Longtime Fool contributor Rick Munarriz is a fan of dumb and smart business moves. Investors can learn plenty from both. He owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (5)

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  • Report this Comment On July 31, 2009, at 12:16 PM, newengland2 wrote:

    $199 for Pre already is steal price. It has double the fuctions than iPhone. Short momery (or lower IQ) guy will not qualify to talk at here. iPhone was $599 when first time lunched back two years ago. Remember!

  • Report this Comment On July 31, 2009, at 12:51 PM, IntelliFool wrote:

    This Yahoo deal is smart long term. Yahoo is focusing on its core competency (content) so that they can invest more heavily in it and make it even better than it already is. #1 in News, Finance, and Sports. Over 40% of online users' time is spent on content compared to search which is only 5% (according to the Online Publishers Assoc.). When the recession turns around, advertisers will start looking for a place online to spend their brand dollars, and they'll look to Yahoo.

  • Report this Comment On July 31, 2009, at 2:30 PM, tgauchat wrote:

    Great comments.

    I'm rather ambivalent on both topics.

    Both Palm and Yahoo have strong brand recognition and that can help them weather some tough times for a while longer ... and during this time ... possibly get stronger.

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