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 we do every week, let's take a look at five head-spinningly dumb financial events from the past seven days.

1. Spilling the beans
I'm not a fan of secondary offerings, so I have to call Green Mountain Coffee Roasters (Nasdaq: GMCR  ) out.

I'm a big fan of its Keurig single-cup coffee brewers, and of Green Mountain as an investment. The stock has also climbed 153% since I recommended it to Motley Fool Rule Breakers subscribers nearly six months ago.

However, I can't play favorites -- so why are you making me look bad, Greenie? Announcing a secondary offering this week? After last week's blowout quarter? You didn't need the money. The cash flow is trickling in. Your debt is manageable. There aren't too many realistic acquisition targets that would require a dowry.

I'll stomach the dilution, but I don't have to like it.

2. Vonage phones it in
Congratulations, Vonage (NYSE: VG  ) )! You just posted the first quarterly profit in your rocky history. What's a telephonic upstart like you doing on a weekly hit list like this?

Well, the news isn't all as cheery as the fading service provider's bottom line would seem to suggest. Churn inched higher, and the company lost 89,000 net subscribers during the quarter. The inspiring bottom line is the handiwork of cheaper costs in providing virtual connectivity. If rivals are realizing many of the same savings, won't that drive subscription prices lower?

This model is starting to feel like one of those early Vonage commercials. You know, the ones where folks keep making bad decisions.

3. Another avoidable accident at the rumor mill
The Interwebs were alive with chatter this week, claiming that Netflix (Nasdaq: NFLX  ) subscribers would soon be able to take advantage of streaming movies from the service's digital library through Apple's (Nasdaq: AAPL  ) App Store.

Netflix streams on iPhones and Wi-Fi-tethered iPod touch devices? It's too good to be true.

The rumor never made sense once you considered what it would entail:

  • Apple would prefer to sell you video rentals and actual downloads. Letting in Netflix would cannibalize iTunes sales.
  • Most of the appliances that play Netflix streams are computers, DVRs, and Blu-ray players. These are companies that aren't trying to sell you a la carte flicks. The only partner who might have a conflict of interest here is Microsoft (Nasdaq: MSFT  ) , but Netflix CEO Reed Hastings sits on the Microsoft board.
  • The moment Netflix hits Apple's App Store, BlackBerry and Pre owners will feel alienated. Remember how Mac owners felt when streaming was limited to Microsoft-powered computers?

4. A Schmidt's summer night dream
If the boardroom dynamics between Microsoft and Netflix's CEO border on the ill-advised, ask yourself how Google (Nasdaq: GOOG  ) CEO Eric Schmidt lasted so long on Apple's board. He finally stepped down, but he probably should have done so much sooner.

Google and Apple find themselves butting heads more and more these days. They both have mobile platforms, search engines, and cloud computing offerings. Google is about to make a splash with its own operating system.

Can you imagine how awkward some of the more recent board meetings must have been? I can just picture Steve Jobs gesturing frantically to the non-Schmidt board members when something meaty was coming up, hoping to keep the revelation away from the Google guru's attention.

5. Merrill's Academy Award performance in doubt
Fellow Fool Matt Koppenheffer feels that Bank of America (NYSE: BAC  ) deserves to be ridiculed for tapping a former Citi CFO to run its global wealth and investment management operations.

I think Bank of America belongs in this week's list of dumb moves, but not for that questionable move.

Emails from early December are being made public, implying that Bank of America decided not to alert investors that Merrill Lynch's net loss would be roughly $2 billion greater than forecasted. Apparently, the sum was deemed immaterial by the ragdoll bank.

Can we stop by a Bank of America branch on the way out of this week's column? I want to see whether I can make a $2 billion withdrawal. We'll see how immaterial it is then. 

Let's beat the dumb drum:

Start investing today -- just $7 per trade with Scottrade. Or find the broker that's right for you.

Green Mountain Coffee Roasters and Google are Motley Fool Rule Breakers recommendations. Apple and Netflix are Motley Fool Stock Advisor recommendations. Microsoft is a Motley Fool Inside Value pick. 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 does not own shares in any of the stocks in this story, except for Netflix. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a very smart disclosure policy.


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  • Report this Comment On August 07, 2009, at 9:39 PM, renothecat wrote:

    Green Mountain may not be as green as we think.

    It's a wonderful success story and a great business.

    I have nothing bad to say except for its high P/E.

    This is not Google and GMCR is a mature company.

    The only growth it can attain is to take business from its competitors. This is a real possibility.

    The large short interest may be the reason why the stock stays in the stratusphere.

    Todays volitaile action may have been one last short squeeze before the secondary.

    The secondary was increased to 5 million shares from 4 million.

    Google increased shares to satisfy demand from fund managers when it was added to the S&P 500.

    GMCR with its secondary will impede any significant short squeeze.

    How much will the underwriters and market makers win or lose on this latest move depends on the size of the supply and demand.

    I have only one reason to buy GMCR at these prices.

    Momentum for a quick short squeeze play.

    When that doesn't materialize sellers will be rushing out the door and the dealers will drop the stock in a hurry to avoid getting burned themselves.

    I'm not knocking this outstanding pick by Motley Fool

    but all stocks go down. When Ebay ,Whole Foods, and Starbucks began to crater how many people saw this coming. These are big cap stocks.

    GMCR should be bought lower, traded and handled like a hot cup of coffee in a metal cup.

    Thats if nothing is not known.

    Perhaps the debt load it wants to retire is much larger than we think.

  • Report this Comment On August 07, 2009, at 10:32 PM, joe6464 wrote:

    isn't it possible that Green Mountain will use the cash to buy another company? Diedrich Coffee seems a likely candidate.

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