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 dumb financial events this week that may make your head spin.

1. Limited intelligence
Any fan of share buybacks would be tempted to cheer the $500 million share buyback announced by mall retailer Limited (NYSE: LTD  ) . Even if it's technically a $469 million commitment -- since the company behind Victoria's Secret and Bath & Body Works still had $31 million left on an earlier plan -- even most cynics would agree that a stock repurchase is a bullish event.

Not so fast. Limited also announced that it is offering $1 billion in senior notes, with the new debt priced at a reasonable 6.625% rate. Standard & Poor's didn't like it, knocking down the retailer's debt rating to negative. You shouldn't either. Taking on $1 billion in debt for a new $469 million repurchase seems as out of place as me appearing on the cover of the next Victoria's Secret catalog.

2. There's a legal retainer app for that
I want to dig into Apple (Nasdaq: AAPL  ) for introducing the iPad 2 into 25 different countries today -- while stateside buyers are sitting on shipping delays of "four to five weeks" -- but I can't. This is ultimately about feeding into the overseas buzz.

I will, however, take Apple to task for its decision to sue Amazon.com (Nasdaq: AMZN  ) over the "App Store" name. I respect trademarks, but Apple's gunning for the leading e-tailer after it launched its Android-fueled Amazon Appstore seems to be a bit much.

Apple obviously wasn't the first to trim applications into a monosyllabic catchphrase. We've been talking about killer apps for ages. If Apple argues that pairing App with Store is its domain, I wonder if its iTunes Music Store can come under legal fire from the long-shuttered corner vinyl shop or any record store with "music store" in its moniker?

I realize that there's an "App Store" icon on Apple's iOS devices, but the same can be said for Clock or Camera. Next thing you know, Apple will be going after TGI Friday's or any casual-dining chain where the chatty waitstaff asks customers if they want to dig into some apps before their meals. 

3. Stern rebuke
There's a battle brewing between Sirius XM Radio (Nasdaq: SIRI  ) and Howard Stern's production company.

Stern's camp filed a lawsuit Tuesday, alleging that the satellite radio giant is reneging on performance-based stock grants it claims it earned. According to the lawsuit, Sirius shelled out payments in 2006 and 2007 after surpassing internal subscriber targets, but clammed up during the final three years of the five-year contract.

Sirius XM may be right. It had to hose down its public targets in 2008 and actually shed subscribers during the first half of 2009. What is Stern's camp thinking? Some reports indicate that Stern wants the XM subscribers that were acquired during the 2008 merger to count toward his contract's performance grants.

Ouch! Isn't it embarrassing enough that XM still had more subscribers than Sirius at the time of the merger despite Stern's Sirius exclusivity?

Sirius XM can't tiptoe around this to spare irritating its most notable on-air talent. It needs to shout its defense from the rooftops before Stern's actions scare away potential talent that may demand more upfront money in light of the public tussle.

4. Circuit City's haunting reality
There wasn't a lot of holiday cheer at your local Best Buy (NYSE: BBY  ) .

The consumer electronics retailer followed up a dreadful fiscal third quarter with an even more distasteful fourth quarter. Revenue, earnings, and comps fell 1.8%, 16.4%, and 4.6%, respectively.

Ignore the apologist that claims that at least Best Buy clocked in ahead of Wall Street's expectations. The struggling retailer hit a two-year low yesterday because its performance flat out stinks.

We can blame the failure of 3-D televisions to take off the way the industry expected. We can pin the tail on Amazon.com and other e-tailers eating into the traffic at bricks-and-mortar chains. We can even fault Apple's wildly successful chain of stores for proving that gadget makers can market directly to their well-to-do audiences. No matter how you slice it, Best Buy isn't the company it was even during the recession. I realize that this is a popular newsletter recommendation around The Motley Fool, but it's starting to look more like a value trap than a value.

Circuit City's vaporization two years ago was supposed to be an opportunity. I guess it was simply an appetizer.

5. A drug bust
Shareholders of drugstore.com (Nasdaq: DSCM  ) aren't hallucinating. Pharmacy chain Walgreen (NYSE: WAG  ) is buying the meandering dot-com bubble survivor out at $3.80 a pop.

This may seem like a wee price, but it's a 113% premium to where drugstore.com closed before yesterday's deal was announced.

I'm guessing that drugstore.com must have a killer personality, because it's not much of a looker. It has posted quarterly deficits in five of the past six quarters. It missed Wall Street's profit guesstimates in all but one of last year's quarters.

Walgreen is clearly making a retailer push after buying Duane Reade last year and selling off its prescription benefits management business earlier this month. However, it's overpaying for a company that hasn't traded in the double digits since 2000.

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

Best Buy is a Motley Fool Inside Value pick. Apple, Amazon.com, and Best Buy are Motley Fool Stock Advisor choices. Motley Fool Options has recommended a bull call spread position on Apple. The Fool has written puts on Apple and owns shares of Apple, Best Buy, and Limited Brands. 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. Hdoes 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 (5)

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.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1464664, ~/Articles/ArticleHandler.aspx, 11/24/2014 3:33:44 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement