Throw This Stock Away

The house rules are simple in this weekly column.

I bash a stock that I think is heading lower. I offset the sting by recommending three stocks as portfolio replacements.

Who gets tossed out this week? Come on down, American Greetings (NYSE: AM  ) .

Get-well swoon
One of the more surprising announcements out of Apple (Nasdaq: AAPL  ) yesterday was a new Cards app. iPad and iPhone owners will be able to turn their snapshots into greeting cards. So far, so obvious. However, Apple is now giving users the option of mailing that card in physical form. Printed on high-grade stock paper and mailed out directly from Apple, $2.99 is all it takes to get a slick, customized, photographic card sent anywhere in the United States. The rate is $4.99 for anywhere else in the world.

Gee, I've seen American Greetings cards that sell for more than $2.99 -- and that's before the hassle of stuffing it in an envelope, looking for a stamp, and mailing it myself.

Ouch!

Shares of American Greetings slipped 6% yesterday given the development, on its heaviest trading volume in two years.

Investors have seen American Greetings defy gravity in the past. Last week's quarterly report shows a company that continues to grow despite its seemingly doomed niche of paper greeting cards. Revenue climbed 4% through the first half of this fiscal year, with earnings growing even faster. However, a warning of "earnings volatility" during the latter half of the year was enough to send the lone major analyst firm tracking the company to lower its profit target for this year -- and next year.

It's really just a matter of time, isn't it? American Greetings has a rich history that dates back more than 100 years. It's a major player in Web-based greetings. It has posted year-over-year earnings improvement in six of the last eight quarters. However, how much longer can it keep this up in a world where friends and family members can easily send greetings through Facebook and email quickly and for free?

American Greetings certainly seems cheap at six times forward earnings. The 3.2% yield surely will tempt some income-chasing value investors. However, realistically, how can American Greetings be more relevant in five years than it is right now?

It can't -- and Apple's new app is just another reminder that American Greetings is peaking in performance.

Good news
As I do every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting the heave-ho. Let's go over the three fill-ins.

• Shutterfly (Nasdaq: SFLY  ) : The market also knocked down shares of Shutterfly yesterday on the Cards app, but I think that's an overreaction. Shutterfly turns digital snapshots into physical products; one of the few things it doesn't do is "one off" greeting cards. Customers can buy a box of photo-customized greetings, but at a substantially lower price point than Apple's new service. Is the bearish turn a fear that Apple will begin eating into Shutterfly's sweet spots of photofinishing, holiday greeting cards in bulk, and slick photo books? I doubt it. Shutterfly is rolling. Net revenue climbed 62% in its latest quarter. An acquisition helped pad results, but this is still healthy momentum heading into the telltale holiday season.
• Vistaprint (Nasdaq: VPRT  ) : As a kissing cousin to Shutterfly, this Netherlands-based company specializes in on-demand printing for business products. Business cards, pamphlets, and customized pens are just some of its offerings. It's the right product (cost-effective enterprise printing relative to local print shops) at the right place (small businesses are actually bucking the trend and growing). Vistaprint's stock got hammered after hosing down its guidance this summer, but this essentially means that you can now pick up Vistaprint for less than 14 times next fiscal year's earnings.
• OpenTable (Nasdaq: OPEN  ) : Apple's event also took down shares of OpenTable yesterday, though it wasn't the Cards app dinging the leader in online restaurant reservations and electronic reservation books. It was the new iPhone's ability to be verbally instructed to find the nearest top-rated restaurants on Yelp that pinched OpenTable. Just as OpenTable took a hit after Google (Nasdaq: GOOG  ) acquired eatery rater Zagat last month, the worrywarts don't seem to have a clear picture of what OpenTable does or how far Google or Apple may potentially disrupt the company. For starters, OpenTable has been a Yelp partner since last year. Any technology that encourages seeking out new restaurants is also a blessing to OpenTable, since Apple or Google would never try to build the infrastructure of eatery enterprise software paired up with an established foodie haunt for reservations. In other words, Apple's chatty new iPhone 4S is a friend -- not foe -- of OpenTable. Forks down!

I'm sorry, American Greetings. I hope this dis doesn't come off as un-American.