This Week's 5 Dumbest Stock Moves

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

1. Another Barnes burner
Shareholders threw the book at Barnes & Noble (NYSE: BKS  ) after the superstore chain for bibliophiles posted a wider-than-expected loss.

I was scratching my head before the actual quarterly report.

"Barnes & Noble is perhaps the most surprising name on this list," I wrote, chronicling companies expected to post year-over-year improvement on the bottom line. "Aren't we all buying more digital books these days? B&N also slashed the price of its Nook e-reader back in June. Isn't that going to gnaw away at the bookseller's margins?"

It's not just the margin-snuffing price cuts. Barnes & Noble is now rolling out a tablet-esque touchscreen e-reader in color that sells for half what Apple (Nasdaq: AAPL  ) is charging for its entry-level iPad.

It was nuts to expect the fading retailer to lose only $0.08 a share during the quarter. The $0.22-a-share deficit is more like it.

2. Comcast bashing goes to a new Level
Hitting a brand while it's down, Level 3 Communications (Nasdaq: LVLT  ) is going public with Comcast's (Nasdaq: CMCSA  ) demands for more money out of Level 3's content-delivery network if it wants to serve chunky digital movies to Comcast subscribers.

Level 3 argues that paying Comcast's fees isn't fair, especially since Comcast itself offers streaming through its Xfinity TV initiative. The move places other movie-streaming services at a pricing disadvantage. Comcast is countering by simply educating the public on how peering agreements work, but that may not fly with the growing ranks of cord cutters.

Foolish reader stan8331 sums it up perfectly:

If Comcast wants to charge all its customers a higher fee, or a metered fee, they're free to do that. And those customers would in turn be free to switch a different ISP who offers them a better deal. What Comcast should NOT be free to do is erecting toll booths that give their cable service a competitive advantage versus other methods of delivering content.

3. They aren't all winners in China
For a while, all an investor had to do was throw money at any company with skin in China's booming online gaming industry. As young gamers flocked to Internet cafes and more affluent citizens could afford home PCs, multiplayer fantasy games were all the rage.

Investors need to be pickier these days. There are certainly a few market darlings growing nicely, but Shanda Games (Nasdaq: GAME  ) is not one of them. Revenue fell by 14% in its latest quarter, and earnings fell even harder.

It shouldn't surprise anyone to see the shares trading well below last year's IPO price, especially since it has failed to beat analyst profit targets in each of its first four quarters as a public company.

Shanda Games has an intriguing pipeline and some of its newer titles are also picking up the slack. However, investors may want to wait until Shanda actually surprises the market positively -- for a change.

4. The $6 billion garbage grab
I know I'm not the only one who thinks Google (Nasdaq: GOOG  ) is crazy to consider buying Groupon for a rumored price of $6 billion.

However, a lot of people have been egging on the world's biggest search engine to hook up with Groupon, even at a price that would be equal to its investments in a pair of DoubleClicks or four YouTubes.

  • Fellow Fool Rich Smith argues that the price-to-sales multiple is cheap.
  • VentureBeat's Owen Thomas trusts Google's judgment because it knows how much Groupon is spending to recruit new members through Google's ad platform.
  • Several analyst firms -- Caris & Co., Needham, and Oppenheimer -- have voiced their support of the potential acquisition.

I'm going to stand my ground. Regardless of what Groupon may be making today in what is clearly a fast-growing model with insane margins, the same reasons that make Groupon attractive as a buyout company today are what will attract a bazillion clones beyond the ones already in the market.

No one goes from $0 to $6 billion in two years, unnoticed. The social coupon bubble is starting to feel like the dot-com bubble.

5. Chief buyer goes bye-bye
(Nasdaq: YHOO  ) is losing its head of corporate development at the worst possible time.

Andrew Siegel was the architect of Yahoo!'s mergers and acquisitions activity over the past year, so his loss is going to be more profound than that of most of the other executives who have stopped bleeding purple in recent quarters.

Did you catch the previous item on today's list? Google is about to make its biggest acquisition -- ever -- and Yahoo!'s corporate development team is playing musical chairs. This is a time to buy, as long as the purchases are reasonable.

Yahoo! has come up short in its efforts to land Facebook and now Groupon. It needs a defining acquisition to make it relevant again. If you can't even keep your M&A chief for more than a year, how likely are you to close on a deal that turns heads?

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

Google is a Motley Fool Inside Value pick and a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor pick. The Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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.

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

Comments from our Foolish Readers

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 December 03, 2010, at 5:45 PM, vikingwes wrote:

    Problem with the stan8331 comment on Comcast is that I do not have an alternative for a cable/broadband connection - I believe that most of the country still lives under a monopoly when it comes to a non-dial-up internet connection.

  • Report this Comment On December 04, 2010, at 6:16 PM, fennecfoxen wrote:

    The Wall Street Journal made a point for Groupon: while the barriers to entry are very low, the barriers to *scale* in ramping up a business like this can be pretty significant. Oh, sure, everyone and their dog can put together a coupon website, but it turns out you actually need *people* to pitch your service and negotiate with the merchants who will offer the coupons, and you can't just wish them into existence overnight.

    A big company with lots of resources might be able to come up with Scale on the problem, who's it going to be? Many of the usual big-Internet-company suspects like Amazon would be a little out of place dealing with coupons for the brick-and-mortar stores that they compete with. I could (theoretically) see Yahoo! making a play there, possibly, but I'd be skeptical as to whether or not they have that sort of initiative, or could execute it well if they did.

    Groupon has a nice little niche for the moment, bridging the "real world" merchants with the Internet, and it's a little bit better defended than some people seem to think. Not unassailable, certainly, but a decent position nevertheless.

  • Report this Comment On December 05, 2010, at 10:03 PM, kthup wrote:

    The author of this article quotes himself. He does not seem to realize that his quotes of himself emphasize his own lack of understanding of B&N's business model. "Aren't we all buying more digital books these days?" he asks. Yes. And B&N has responded. "B&N also slashed the price of its Nook e-reader back in June. Isn't that going to gnaw away at the bookseller's margins?" No. B&N understands where the revenue is. The author does not.

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