Throw This Stock Away

Not every stock deserves the gains that have been tacked on in recent months. There is no amount of Photoshop that can touch up some of the publicly traded companies that have seen their share prices outrun their fundamentals.

That's why I'm here. I slam a stock every week. I urge readers to throw it away. I'm all about recycling, though, since I come right back with three replacement stocks that I believe will perform better.

Who gets tossed out this week? Come on down, Adobe (Nasdaq: ADBE  ) .

Going down for the count
Adobe is acquiring online analytics specialist Omniture (Nasdaq: OMTR  ) in a $1.8 billion deal. It's a smoke screen. It's a distraction away from the organic weakness. In Adobe terms, it's been Photoshopped.

There's nothing wrong with Omniture. It's a great buy at a reasonable price. Omniture doesn't crank out the same kind of high gross and operating margins as Adobe, but it's a juicy subscription-based model that will serve Adobe well in establishing stronger binds with its clients. However, the timing of the acquisition finds the financial media focusing more on the deal and less on the abysmal quarterly report that Adobe put out this week.

Revenue fell 21%. Earnings dropped by an even sharper 26%.

This isn't just some quarterly blip. It's indicative of how this fiscal year is shaping up for Adobe. Analysts see the company surrendering 19% and 27% on the top and bottom lines respectively this year. Wall Street sees a gradual recovery next year, with Adobe making back just a third of those declines.

Adobe is a global juggernaut. Roughly half of its sales are coming from Europe and Asia these days. The company is also comprised of many moving parts, making it so much more than the desktop publishing specialist it was in the past.

However, when you size up Adobe's various products, it's hard to fathom the company being more relevant in the future than it is today. Marquee Adobe software Flash, Acrobat, and Photoshop may be the top dogs in their niches, but these are vulnerable times for leaders and inviting times for potential disruptors. Even when Adobe has its heart in the right place -- as in online apps through LiveCycle and web conferencing through ConnectNow -- the future promises to drive software solution prices lower.

With all of its oars in the water, Adobe has proven that it is not immune to global recessions. In the end, it's just an OK company, when you can do so much better.

Good news
As I do every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting tossed. Let's go over three new fill-ins.

• Apple (Nasdaq: AAPL  ) : Apple and Adobe have clashed in the past, since Apple's iconic iPhones don't do Flash. The smartphones provide a workaround for YouTube videos in Flash, but why cave in when Apple has the delusional hope that QuickTime will someday be the video standard of choice? It won't, but that's not the point. Some suggest that Apple should buy Adobe, but why? Apple is the growing company right now. As it grows more market share, it's easier to push its own multimedia editing and Web development solutions.
• Salesforce.com (NYSE: CRM  ) : Adobe has cloud computing aspirations, but Salesforce is the poster child for Web-stored solutions. Unlike Adobe, Salesforce is thriving in this evolutionary downturn with its enterprise applications. Analysts expect big things out of Salesforce this year (revenue up 19% and earnings shooting 77% higher). The stock is certainly not priced for the squeamish, but Salesforce has proven its ability to expand margins given its scalable model.
• Google (Nasdaq: GOOG  ) : The future of Flash rests in Google's hands. No one is suggesting that Big G is going to replace Flash as the video platform of choice on YouTube, but you know Google can -- and will -- if it finds a better fit. Microsoft (Nasdaq: MSFT  ) has taken shots in the past at Adobe's standards in video and even PDF files, but the company can no longer jam platforms down the throats of computer users like it did during desktop computing's prime. Google is different. It has also followed Apple and Salesforce in growing at a time when Adobe and most of its peers are retreating.

Until Adobe shows that it can do more than simply take baby steps out of the fiscal 2009 hole, your best bet is to stick to the companies that are still growing today.