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

1. Coffee, tea, or complexity?
The friendly skies aren't so chummy in cyberspace. AMR (NYSE: AMR  ) is pulling its American Airlines flights from Orbitz Worldwide (NYSE: OWW  ) this week, in a lose-lose situation. Orbitz.com users will have to deal with a slightly leaner selection of flights, and AMR will lose business by turning its back on one of the larger travel portals.

The dispute centers on how Orbitz obtains its flight information, but it doesn't matter who's wrong or right here. Both parties have plenty to lose, and consumers may pay the dearest price if portals lose any of the fare-scouring prowess that potential travelers have come to expect.

2. Home, bittersweet home
There's more to an elusive turnaround for real estate developers than narrowing deficits. Hovnanian Enterprises (NYSE: HOV  ) posted a smaller quarterly loss than it did during the same period a year earlier, but it also posted a 13% slide in new contracts.

The way some homebuilders have run up since the recession turned, it would be easy to assume that new residential construction is on the rise. Not so fast. We still have a glut of existing properties and foreclosures. It also doesn't help that mortgage rates have been inching higher lately.

Low interest rates joined forces with the federal homebuyer tax credits that expired earlier this year to inflate prices. Until the air is truly out of those balloons, homebuyers aren't trekking out to check out new cookie-cutter communities in the suburbs. Then again, when prices do bottom out, is anyone sure that narrowing deficits will turn into profits?

3. Turning lemons into used-car lemonade
Shares of CarMax (NYSE: KMX  ) shifted into reverse after a seemingly stellar quarter. Revenue climbed 23% for the used car seller, fueled by a 16% turbo boost in comps. Adjusted earnings floored it, climbing 50% to $0.36 a share -- well ahead of where Wall Street was parked.

So why did the stock shed nearly 8% of its value on Tuesday after the report? Well, CarMax's shares have nearly doubled since this summer's low in the high teens. The problem with huge runs leading up to quarterly results is that even blowout numbers can sometimes be discounted. That's what happened here, but Mr. Market is the dummy for inflating this stock to the point when even a great quarter seems underpowered.

4. Big G, little living room
Pushing its way into home theaters has been no easy task for Google (Nasdaq: GOOG  ) . Now its Google TV initiative has suffered another blow, as many of the television manufacturers that were set to debut TVs employing Google's online platform are backing off from introductions during next month's Consumer Electronics Show.

Is Google asking manufacturers to hold off until it tweaks its platform and gets more networks on board? Are the makers of big-ticket high-def televisions just getting cold feet after Google TV's chilly reception? Either way, October's debut has been a holiday bust.

Google is unparalleled in the lucrative realm of paid search. YouTube is the undisputed champ among video-sharing sites. Android continues to pick up steam as a smartphone operating system. However, Google's flunking out with the couch potatoes. Logitech's (Nasdaq: LOGI  ) Revue -- the set-top solution for folks who don't want to spring for a new Sony (NYSE: SNE  ) TV or Blu-ray player -- hit the market at $299.99 two months ago. It's already being marked down to $249.99 through leading consumer electronics stores, and even Logitech itself.

Companies often lower prices of gadgets over time once, early adopters have had their fill. But slashing prices just weeks after a ballyhooed introduction looks just a little bit desperate.  

5. Stream a little dream, Sony
An unfashionably early wager on Google TV isn't the only thing weighing on Sony. The global conglomerate launched a music streaming service on Wednesday.

I get it. Sony could have dominated the digital music industry. Its Walkman defined the portable music player a generation ago, before the iPod reinvented the niche. However, Sony has a long uphill battle now.

For starters, it already has some skin as a major record label, so it may be difficult to get rival majors to trust it completely in this venture. This is also already a cutthroat market, particularly on the streaming side; Napster and Rhapsody have gone through ownership changes in recent years.

Sony launched the service in the United Kingdom and Ireland on Wednesday, with other countries targeted for early next year. No offense, Sony, but we've heard this record before.

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. Logitech is a Motley Fool Hidden Gems pick. The Fool owns shares of Google and Logitech. 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.


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  • Report this Comment On December 27, 2010, at 11:48 AM, jargonific wrote:

    Indeed, Christmas brought some dumb moves to the fore, but Morningstar still puts the stock at 32.00. Their consider sell position is $54.40. Clearly, this was a profitable company, and while I don't think it would be the best long term investment for us... small time retirement types... it does indeed seem that the fund investors are going to be snapping it up for the long run. Don't accept big losses, deny hedge fund short players. They deserve it.

  • Report this Comment On December 27, 2010, at 4:48 PM, ngmeoy wrote:

    Actually, Mr. Market is a dummy on KMX for not understanding the BUSINESS; the stock was actually pretty fairly valued for the way business has been going, but MM thought KMX would have it's cake and eat it too.... huge revenue growth, AND margins out of line with history for Q3's, which are always seasonally down. For anyone who understands the business, it went from great to better. And the way the company managed the Q indicates that management understands that a 50% EBIT increase (take out one time finance adj. LY) is plenty, went for big share gains after that.

    But as far as I can tell, "Mr. Market" is mainly made up of finance guys, who as far as I can tell don't really understand ANYTHING about actual businesses, competitive dynamics, organic growth, etc.

    So he/they are giving clever folks who do a nice chance to buy KMX at what is probably the best price you'll see for a while. And remember, this is one of the 2-3 best performing companies for shareholders over the last decade...up 28.8x since 1/3/00; Apple, by contrast, is up 11.6x. If you saw Cramer's list two weeks ago and wonder about these numbers, just note that KMX changed from a tracking stock of long-gone CC to an independent stock in 10/02 (good move !), and though the symbol remained the same, most services treat them as two different stocks. As with the not so clever emanations of rating agencies, one should always take data from folks like Thompson/Reuters with a BIG grain of salt... "Trust, but Verify", as they say.

    As you might guess from the optimism embodied here on KMX, I am a long-term holder... and a very happy ones who sees great things happening with the business, which will eventually mean great things for the stock. They have come out of the recession MUCH stronger vs. competition, if that is possible.

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