This Week's 5 Dumbest Stock Moves

Stupidity gets us all from time to time. Even respectable companies can catch it. It's time again to take a look at five dumb financial events from this week that may make your head spin.

1. Bears should time their crossings a little better
If you're going to go out on a limb, check the branch's sturdiness.

Perfect World (Nasdaq: PWRD  ) reported better-than-expected results on Monday. Revenue soared 55%. Non-GAAP earnings surged 45%. Obviously there's nothing dumb about the quarter that the Chinese online gaming speedster delivered. For that, we turn to Pali Research, which downgraded the stock exactly one week ago today.

"In the short term, we do not expect any surprises," said Pali's note, arguing that Perfect World will earn less than even the consensus analyst estimate over the year ahead.

I don't know why any analyst would want to make a gutsy call a single trading day before an earnings report. Perfect World had beaten analyst expectations in six of the previous eight quarters, so the batting average for a bearish swing has been freakishly low.

2. Xbox marks the spot
Microsoft (Nasdaq: MSFT  ) updated its Xbox Live interface on Tuesday, integrating Facebook and Twitter into the Web-tethered service. Sony (NYSE: SNE  ) is working on similar interactivity for PS3 owners.

On the surface, this seems like a great way to move more Xbox 360 consoles. Access to sticky social sites will likely extend the average gaming experience.

Let's dig deeper, though. Folks fiddling around with Facebook status updates or checking the latest Twitter feeds aren't going to be playing as many games as they used to. This may very well result in a slowdown of digital downloads purchased from the Xbox Live marketplace. As video game consoles do more and more computing chores, desktops and netbooks may become less crucial and that will also hurt Microsoft in moving copies of Windows and related software.

I realize that this isn't a popular "dumb" call. Some will argue that folks spending more time on Xbox Live will move systems, provide Microsoft with the opportunity to generate juicier ad revenue, and increase usage of Xbox Live. I still see these evolutionary steps as detrimental to Microsoft in the long run.

3. Trading E*TRADE babies on the black market
Shares of E*TRADE (Nasdaq: ETFC  ) rose 9% on Wednesday, despite posting lackluster trading activity results earlier in the day. What was behind the ironic upswing? Well, TD AMERITRADE's (Nasdaq: AMTD  ) CEO -- speaking at a conference -- reportedly said that he would be interested in a deal for E*TRADE.

Let's think this through. Are speculators that dumb? Do they really believe that TD AMERITRADE would go public with its intentions of snapping up the rival discount broker, when the very notion would drive up the stock, making the buyout more expensive?

I'm not naive. I think TD AMERITRADE will eventually make a play for E*TRADE. However, when it's actually serious about it, I trust TD AMERITRADE to tiptoe unnoticed into E*TRADE's boardroom.

E*TRADE's uninspiring October -- on the heels of TD AMERITRADE's delivering superior results for the month -- could have been the ideal time to strike. However, I'll believe the chatter when TD AMERITRADE doesn't tip its hand.

4. Loyalty is a loaded word
Online loyalty programs have come under fire in Senate committee meetings this week. Three companies are accused of bilking consumers out of $1.4 billion in revenue by promoting deceptive Web-based programs that bill victims monthly.

The salt in the wounds here is that these three privately held companies can't do this alone. All they require is an email address to begin billing the duped, because they get the credit card information from merchant partners who collected it during the online checkout process.

Of course, some people are fully aware of these programs, and have every interest in paying monthly fees in exchange for the loyalty program's discounts and services. However, there are too many complaints from those who feel that they have been tricked into the monthly billings.

The clincher is that the feds have singled out 19 sites that have generated at least $10 million apiece in referral fees from marketing these programs to their customers. Most of the major online travel portals and movie ticketing sites are on the list. United Online (Nasdaq: UNTD  ) is on there twice -- since its Classmates.com and FTD.com sites each make the cut.

Sold out by a loyalty program? You know it.

5. Use the salesforce, Luke
Investors knocked down shares of salesforce.com (NYSE: CRM  ) after the cloud-based enterprise software provider posted its quarterly results. Cynics were dismayed over the company's inability to grow deferred revenue.

It's naturally a good reason to be concerned, as it's often an early indicator of future slowdowns. Unfortunately, the market seems to have ignored that salesforce also raised its near-term guidance.

It's not all rosy, though. The stock trades at lofty multiples. Revenue growth has slowed -- or clocked in flat -- for several quarters in a row. However, when a company increases its future guidance, it deserves better than being dissed on a backward-looking indicator.

Let's beat the dumb drum:

salesforce.com and Perfect World are Motley Fool Rule Breakers picks. Microsoft is a Motley Fool Inside Value selection. Motley Fool Options has recommended a diagonal call on Microsoft and formerly recommended writing puts on Perfect World. 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 disclosure policy.


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  • Report this Comment On November 26, 2009, at 11:52 PM, raptorx25 wrote:

    I'm glad I snapped up some ETRADE shares at $1.50. It's hard to believe that they are valuated so low. Surely even the debt fallout from mortgage-backed securities wasn't that bad. At either rate, it is unlikely that they will stay under $2.00 for too long. Or maybe I'm just a fool?

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