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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 this week that may make your head spin.

1. Splitting the smorgasbord in two
(Nasdaq: NFLX  ) is taking the biggest risk of its life with an aggressive pricing strategy that splits its DVD and streams into two distinct services. The company and some of its more bullish analysts seem to believe that raising prices by as much as 60% for plans that include unlimited optical discs and Internet video will push couch potatoes toward high-margin streams.

I'm not so sure. Despite virtually stocking tens of thousands of streaming titles, Netflix's digital catalog is sadly incomplete. It's missing most of the new releases that studios don't want to devalue on the buffet line. Customers haven't raised much of a stink since it was simply a perk included with disc-based subscriptions, but expect Netflix's sterling reputation to come under fire in the coming months. In the end, I think way too many people will realize that they prefer the DVD service over the similarly priced streams.

As a longtime shareholder and customer, I hope I'm wrong. If this pans out, Netflix is going to be making a ton of more money and the studios will be happy to see the perceived value of physical and digital celluloid improve dramatically.

However, I think Netflix is rolling out this move before many movie buffs are sold on the premise of premium streaming.

2. What's that smell, Dell?
The computer isn't dead, but its pulse is fading in this country. Industry watcher IDC claims that while PC shipments inched higher worldwide during the second quarter, stateside shipments actually fell by 4.2% over last year's quarterly showing.

The weakness isn't universal. We're buying more Macs than we used to. Unfortunately, we're just not so hot on watching Windows. Dell (Nasdaq: DELL  ) and Acer were the biggest losers, combining to ship fewer units than the net decline itself.

Dell has been a piece of work. It missed the netbook craze two years ago, and it has struggled to make a difference in the smartphones and tablets that appear to be replacing the demand for larger computing devices.

3. Big G gets even bigger
It's always dangerous to get in the way of a market darling, but that's just what Morgan Stanley analyst Scott Devitt did last Friday, hosing down his profit targets on Google (Nasdaq: GOOG  ) just ahead of last night's quarterly report.

I wasn't any better. I went over the three reasons to worry heading into the search giant's quarterly report, repeating the bearish margin-thinning scenario that was beginning to trouble some Google watchers given its expansion into less lucrative areas. Google may have beaten Wall Street guesstimates in nine of the past 11 quarters, but both of those misses have come in the past year.

Well, Google certainly showed the bears the problem with talking down a company before its quarterly call. The world's leading online search company blew past analyst expectations, earning $8.74 a share before items related to employee stock. The pros were only banking on adjusted net income of $7.84 a share.

Well played, Google. I'm guessing that someone Googled "playing possum" before the report.

4. Lumber parting
News Corp.
(Nasdaq: NWSA  ) (Nasdaq: NWS  ) can't seem to shake its tarnishing tabloid image in the United Kingdom, and it's paying a dear price.

Rupert Murdoch's beleaguered media empire shut News of the World -- Britain's biggest selling Sunday publication -- last week over growing accounts of hacking cell phones for stories.

The brash closure was a shock, but the theory was that News Corp. was simply trying to do the right thing in order to win the ability to buy full control of British satellite broadcaster BSkyB.

Well, things only got worse this week. New scandals and shareholder lawsuits broke this week, and snapping up all of BSkyB may never materialize now.

5. Another home improvement specialist walks the plank
It's not easy to make a living selling home improvements lately.

Shares of Trex (Nasdaq: TREX  ) tumbled 15% on Tuesday, after the wood-alternative decking leader warned that it came up short in its recently concluded quarter. Its original guidance was calling for $115 million in revenue, roughly in line with the $115.5 million it rang up during last year's telltale springtime quarter. Now it's telling investors to expect something closer to $78 million.


Investors should have seen this coming. Didn't they see Lumber Liquidators (NYSE: LL  ) get crushed after hosing down its near-term outlook last week? Hardwood flooring planks for the home and weather-resistant decking for the patio aren't the same thing, but they both appeal to the same audience of homeowners with the means and desire to spruce up their digs. Sympathy plays are the real deal, and Trex shareholders who missed the Lumber Liquidators memo hit the deck hard this week.

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

The Motley Fool owns shares of Lumber Liquidators and Google. Motley Fool newsletter services have recommended buying shares of Google, Netflix, and Lumber Liquidators, as well as buying puts on Netflix. 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. The Motley Fool has a disclosure policy.  

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.

Read/Post Comments (3) | Recommend This Article (2)

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 July 15, 2011, at 12:19 PM, mdtopper wrote:


  • Report this Comment On July 16, 2011, at 10:02 AM, David369 wrote:

    Yeah Netflix was the biggest dummy. They could have creeped the prices up over 6 months or so or made so many different "plans" that no one could really figure out an average price. Hitting people over the head with a price increase bat tends make customers a little unhappy. I think I see hubris developing here, not a good sign.

  • Report this Comment On July 17, 2011, at 12:30 PM, jjstockpicks wrote:

    Netflix is simply creating an incentive to purchase their more profitable line of business. But that one is still up in the air.

    The author totally missed the ball on Dell here. Dell is NOT focused on the consumer market. Dell's mindset is to compete with IBM Global Services, no one ever says IBM is a big dummy because they didnt offer good laptops to consumers or good smartphones.

    Instead, IBM makes a ton of money with their highly profitable services industry.

    Look at ALL of Dell's acquisitions, they were all about servers, storage, cloud, and services. Dell is building 20 datacenters for this service.

    I am long on Dell and if you are smart you would be too.

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