This Week's 5 Dumbest Stock Moves

Stupidity is contagious. It gets us all from time to time. Even respectable companies can catch it. Let's take a look at five head-spinningly dumb financial events from the past seven days.

1. Video killed the networking star
Maybe you can't teach a old-media dog some new-media tricks after all.

NBC has bowed out of Google's (Nasdaq: GOOG  ) AdWords for TV marketplace, which connects commercial advertisers with networks with ad spots to fill.

Google is the undisputed champ of online advertising, but it's had its struggles in porting its model to more traditional forms of advertising. It has retreated or coped with setbacks in the print, radio, and now television ad markets.

You can rest easy, Howard Stern. Google is no threat to dethrone you as the king of all media.

2. You've got bail
Can you throw a wedding without the bride's consent?

The Wall Street Journal confirmed buyout chatter that's been circulating among financial blogs all month: Private-equity firms are trying to stage a buyout of Yahoo! (Nasdaq: YHOO  ) , combining it with AOL (NYSE: AOL  ) along the way.

There are many reasons to believe that this will never happen.

  • The plan appears to have AOL CEO Tim Armstrong heading up the combined company, even though AOL commands a substantially smaller market cap than Yahoo!.
  • Getting Yahoo! to play second fiddle will require a hefty premium on Yahoo! shares, which private-equity titans are unlikely to pay.
  • Snapping up Yahoo! would likely involve selling its Asian investments, which could reportedly result in proceeds of roughly $10 a share. That's a reasonable strategy, but Yahoo! can also do the same thing itself if it really feels that its independence is at stake.

It takes three to tango here, and having AOL and private equity on board leaves this deal one dancer short.

3. Gap out of it
Folks can't let a stodgy retailer attempt a revival in peace.

Gap (NYSE: GPS  ) is killing its new logo, just days after introducing it to angry online masses who felt that it was a poor substitute to its traditional blue-boxed insignia.

The new logo was lousy -- too bland and corporate. However, Gap's decision to go back to the original theme shows just how out of touch the once-relevant apparel retailer has become.

This isn't Coca-Cola Classic revisited. Gap is responding only to its dwindling customer base by letting the online critics shape marketing. Gap's real target for the new logo should have been potential new customers -- folks who have no recollection of the earlier icon.

Gap was great a decade ago, when shoppers stormed its stores to load up on stylish basics and denim. Once discount department stores caught on to the "cheap chic" movement, Gap was toast. A company that claims to be fashion-forward shouldn't be looking backward.

4. Heavy medal
Shares of Electronic Arts (Nasdaq: ERTS  ) took a hit earlier this week, after a Cowen & Co. analyst drew investor attention to the disappointing reviews of EA's Medal of Honor video game.

Earlier this month, EA was bragging about pre-sales clocking in ahead of any installment in the franchise's 11-year history. However, that enthusiasm cooled off when the game hit retailers on Tuesday, and reviewers with advance copies began talking.

IGN wrote that the game "walks into a quagmire it never really escapes from." Game Informer concludes that "it's no secret that the franchise has lost its way over the years."

EA needed a hit to revive its prospects. Like many of its gamers, EA's shares have been stuck in the teens for too long. This battlefront shooter could have been the big hit that EA needed heading into the holiday season. Now gamers will just wait for rival Activision Blizzard (Nasdaq: ATVI  ) to roll out the latest installment in its more popular Call of Duty franchise next month.

5. A cup of Joe
When a hedge fund manager talks, investors don't always listen. Long or short, there's usually an agenda behind any public cheerleading or bashing.

However, shares of St. Joe (NYSE: JOE  ) have fallen 20% over the past two trading days, after star hedge fund manager David Einhorn talked down the value of the land-rich company.

Even when it was a run-of-the-mill paper company (pun intended), value investors were warming up to St. Joe for its massive acreage in the Florida panhandle. However, now that real estate prices have been plunging for years, the same folks who felt that St. Joe's book value was understating its assets are now starting to wonder whether it's overstating the diminished value of its Florida real estate. Einhorn showed his math, and while bulls may nitpick over his methodology, impatient investors won't stick around, in case St. Joe does have to mark down its assets.

Maybe it's not too late to fire up the paper mill again.

Which of these five moves do you think is the dumbest? Share your thoughts in the comment box below.

Google and Coca-Cola are Motley Fool Inside Value selections. Google is a Motley Fool Rule Breakers pick. Activision Blizzard and Electronic Arts are Motley Fool Stock Advisor recommendations. Coca-Cola is a Motley Fool Income Investor recommendation. Motley Fool Options has recommended a synthetic long position on Activision Blizzard. The Fool owns shares of Activision Blizzard, Coca-Cola, and Google. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

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. 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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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 15, 2010, at 10:29 AM, ksteve1 wrote:

    I've owned JOE three times since 2007, and made a little money on it each time, not a lot of money. But I am scratching my head for the last two years. Who needs land...for housing development...in Florida? That said, if you buy this thing under $20, there will probably be some fool come along and take it off your hands just under $23, sometime in the future.

  • Report this Comment On October 15, 2010, at 11:17 AM, gakushi wrote:

    After reading Einhorn’s presentation, I have a couple of points to make.

    A) Einhorn’s Land Value analysis.

    Einhorn spent very little of his presentation on 98.8% of JOE’s land holding. He simply assumes the price to be $1818 per acre according to P28. The land JOE sold during 2000-2009 was not strategic to JOE’s long term objectives. We should not simply use the price on P28 to calculate the rest of JOE’s land holding.

    On the other hand, he went into great detail to talk about 1.2% (= (4170 (RiverTown) + 762 (SummerCamp) + 2020 (WindMark) )/ 577,000 ) of JOE’s land holding.

    If you really believe that the JOE sold all its best land at $1818, you can go to the map on P6 in http://files.shareholder.com/downloads/JOE/1037019379x0x3569... to see for yourself and estimate the miles of beachfront land for yourself. In fact, what is left is JOE’s prime real estate. BTW, If you want to know how much a piece of beachfront can be sold for just go to P73 of Einhorn’s presentation. And, JOE has tens of miles of them.

    If you really believe that the tracks of land on the map are all just Timberland and Rural Land, you can go to the map on P11 in http://files.shareholder.com/downloads/JOE/1037273919x0x3146.... Ask yourself why people are building roads in the midst of every piece of JOE’s coastal land.

    B) Write Down?

    Most of the headlines are about Einhorn thinks JOE needs big write-down.

    Again, what Einhorn thinks JOE should take a write-down is just 1.2% ((= (4170 (RiverTown) + 762 (SummerCamp) + 2020 (WindMark) )/ 577,000) of JOE’s land holding, which he heavily focused in the presentation.

    Let’s say I agree with Einhorn that we should write down say $242Million (= 280M – 38M) according to P122. What about the rest 98.8% of the JOE’s book. In fact, I think many of the JOE’s land holdings should be write-up.

    BTW, impairment is just an accounting technique which does not affect JOE’s cash flow.

    C) Burning through cash?

    JOE is not burning through cash. In fact, JOE’s free cash flows for TTM, 09, 08 are $18M, $48M, $46M respectively. As Bruce Berkowitz puts it: “You can only spend cash.”

    In addition, JOE has more than $100Million net cash on hand. And JOE is not wasting money.

    In fact, according to Morningstar, “St. Joe reduced its employee base by nearly 90% since real estate's peak in late 2005, exiting noncore businesses in hospitality services, homebuilding, construction, and development. The firm has also shrunk its regional footprint, closing or selling operations in ancillary downstate areas like Tampa and Orlando. St. Joe now boasts a lean staff of just 140 and an intense singular focus on developing its major regional land holdings, a major positive development compared to its prior, more diverse endeavors.”

    D) Valuation

    Morningstar started covering the company in summer 07. Through the course of its coverage, Morningstar used many different approaches to evaluate JOE, all of them came up with at least $50 per share.

    I believe Berkowitz bought JOE above $30 based on the record. Thanks to Einhorn, you can actually get a much better deal now as of 10-15-2010.

    E) Conclusion

    Over all I don’t think Einhorn did a professional job on evaluating the company. After - as he claimed - looking into the matter for the pass six years, one would expect he came up with a detailed, complete section by section evaluation of JOE’s holding. In stead he just focused on 1.2% (= (4170 (RiverTown) + 762 (SummerCamp) + 2020 (WindMark) )/ 577,000 ) of JOE’s land. I am wondering if Einhorn is not as intelligent as we think he is or Einhorn intended for something else.

  • Report this Comment On October 18, 2010, at 9:43 PM, 1caflash wrote:

    Consider Konami [KNM]. Read how this Company is GROWING! Not only will Its new games be featured on Microsoft and Apple Products, but also a new partnership has been formed with Disney [Marvel]. Konami opened Its First Store in Tokyo and it also is into Casinos and Health Care Equipment. Are You interested in Real Estate Trusts? Chimera has been working well for me. Let me address Dumb Moves. I bought H.and R. Block Mon. 10-18-10 and afterwards it dropped more than $1.00 a share. HRB keeps Its 15 cents-per-share Dividend and I'll be fine while I wait a few years for this Company to do better. It's called Long-Term Investing.

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