This Week's 5 Dumbest Stock Moves

Stupidity is contagious. It gets us all from time to time, and 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. Feeding frenzy
Vringo
(AMEX: VRNG  ) shares soared 29% higher so far this week and have nearly quadrupled so far in 2012. What makes an app maker that generated just $714,000 in profitless revenue last year such a hot commodity?

Well, this week it was Mark Cuban acquiring a 7.4% stake in the company. Vringo is in the process of merging with a company that holds a few patents from dot-com pioneer Lycos. Cuban has ranted against companies using intellectual property to trip up innovators, so this investment is either a hedge or the mother of all ironic purchases.

Why is everyone following Cuban here? Didn't they get burned with Mamma.com a few years ago? Just because he's striking deals on Shark Tank doesn't mean his track record is stellar outside of the Broadcast.com sale that made him a billionaire.

More to the point, Vringo scored its patent merger at a much lower price than where it is today. How much can those eight patents be worth if the holding company went with a tiny company that puts Facebook picture slideshows into smartphone ringtones?

2. Starbucks is bugging out
The cochineal extract controversy is finally coming to an end at Starbucks (Nasdaq: SBUX  ) .

The barista baron is moving away from the controversial food dye -- consisting in part of crushed cochineal beetles -- as a red food coloring in six of its items.

The scandal broke last month when Starbucks admitted that it was using ground-up female beetles in its Strawberries and Creme Frappuccino and Strawberry Banana Smoothie drinks, as well as its Raspberry Swirl Cake, Birthday Cake Pop, Mini Donut with pink icing, and Red Velvet Whoopie Pie.

Yesterday Starbucks announced in its corporate blog that it's moving away from unsavory yet FDA-approved dye. Given the bad press that Starbucks received from vegetarians and folks that generally get creeped out about ingesting beetles, you would think that this would be a smart move by Starbucks.

And it is -- but wait.

"Our intention is to be fully transitioned from existing product inventories to revised food and beverage offerings near the end of June across the U.S.," reads the blog.

So Starbucks is telling you there will be dead beetles in your smoothie for another two months. The controversy was already dying down, and now Starbucks is reminding everyone. Starbucks should've just waited until June to announce that all of its items were cochineal-extract-free.

3. Don't feed the bears
Travelzoo
(Nasdaq: TZOO  ) was one of last week's biggest winners after sources told Reuters that the travel deals publisher was putting itself up for sale.

This week we're finding out why the company is probably starting to explore strategic alternatives. Travelzoo posted disappointing quarterly results yesterday. Revenue of the once high-flying speedster inched just 6% higher, less than half the 14% spurt analysts were expecting.

The culprit here is a mere 4% advance in its North American operations, which account for 72% of its business. Weakness closer to home dragged down operating profits. That whole "selling the company" idea is starting to sound pretty good.

4. Counting cheap
Tempur-Pedic's (NYSE: TPX  ) premium mattress owners are enjoying a better night's sleep, but the same can't be said for its shareholders.

The stock is trading lower today after the company posted uninspiring guidance for the year. Yes, Tempur-Pedic did post better-than-expected results for its most recent quarter, but its outlook calling for net income of $3.80 to $3.95 a share falls short of the Wall Street pros who were caught napping at $3.97 a share in projected profitability.

In the words of Elvira, mistress of the dark: "Unpleasant dreams."

5. Fizzy logic
SodaStream
(Nasdaq: SODA  ) introduced plenty of exciting products at a design show in Europe earlier this week. AquaBar will be the company's first plumbed-in drinking water solution, while Source will be a new line of stylish soda makers starting at just $99.

However, I'm not entirely sold on SodaCaps. The individual soda syrup capsules for its one-liter bottles suggest that it will be an expensive solution to a product that doesn't pose a very attractive value proposition to begin with.

SodaStream's strengths are convenience, nutritional advantages in non-diet flavors, and the eco-friendly nature of making soft drinks at home versus purchasing bottles and cans. Do we really need capsules? If successful, SodaStream will have the killer "razor and blades" model that a lot of investors want to see. However, I don't know if the same consumers who have been flocking to single-serve coffee in capsules will feel the same way about liters of carbonated soda.

As a big bull on SodaStream, I would love to be wrong about SodaCaps. We'll see.

Get smart
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The Motley Fool owns shares of SodaStream International and Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks, Travelzoo, and SodaStream International, as well as writing covered calls on Starbucks. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Travelzoo. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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  • Report this Comment On April 21, 2012, at 6:10 AM, Clint35 wrote:

    Love the Starbucks story. That wasn't just dumb, it was truly stupid. Why were they using that crap in the first place? Is it worth putting bugs in customers' food and drinks just to get that perfect color? I don't think so. But I don't know as much about high-priced coffee as they do.

  • Report this Comment On April 21, 2012, at 11:15 AM, martinitony wrote:

    Regarding SodaCaps: If I had one complaint about the current process, it would be that the syrup bottles can get a little sticky and the pour can occasionally drip on counter if not careful.

    I wouldn't spend much more to get the caps, but if the price is not much more I would try them out. Remember, some owners of a SodaStream machine could care less about cost. After all, they started selling em at Williams and Sonoma, not K-Mart.

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