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. Margin of error
Best Buy
(NYSE: BBY  ) hit new lows this week, and I'm not just talking about the share-price drop to a fresh 52-week bottom.

The consumer-electronics retailer concedes that it will shell out roughly $6.6 million as a severance package to ex-CEO Brian Dunn, even though the audit committee found that he violated company policy by having a "close personal relationship" with a female employee.

Best Buy is also forcing founder Richard Schulze to step down as chairman, after discovering that he knew about Dunn's inappropriate relationship for months before the board launched an investigation into the matter in March. You'd think that as the founder, Schulze would know that keeping a huge policy violation from his board was a big no-no.

And after all that, Dunn gets rewarded with a beefy severance package and Schulze is given the honorary tag of chairman emeritus. Really?

Somewhere out there, Lady Justice is either laughing or sobbing uncontrollably.

2. A J.C. Penney for your thoughts
Why did J.C. Penney (NYSE: JCP  ) shares tumble nearly 20% on Wednesday? The struggling department-store chain's stock probably didn't want to be left out after a 19% plunge in comps led to a 20% drop in net sales in its latest quarter.

Seriously, though, Ron Johnson's turnaround strategy is off to a horrible start. The new everyday-low-pricing "fair and square" strategy implemented in February is backfiring. Loyal shoppers liked receiving coupons to mark down prices. Having to learn the color-coded tags and wait around for monthlong promotions isn't appealing to shoppers.

J.C. Penney suffered a 10% decline in store traffic. The number of visitors who actually bought something fell by 5%, and those who did make a purchase wound up spending 5% less. That's how a retailer gets to a mind-boggling 19% slide in comps.

The company is also suspending its quarterly dividend, so now even patient investors won't be rewarded.

3. The Diablo made me do it
"Error 37" will be forever etched into the memory of Diablo III players.

Activision Blizzard's (Nasdaq: ATVI  ) debut of its highly anticipated PC game on Tuesday proved rocky, as prolonged server outages prevented gamers from playing. The unfortunately timed disruption will make the country's largest video-game company pay.

For starters, its plan to require gamers to be online at all times -- something that turned off many fans of the franchise -- backfired.

You also don't want to upset early adopters. Frustrated players who couldn't log into the game's servers mobbed game-rating website MetaCritic and Amazon.com to flood the sites with negative reviews.

As of Wednesday night, Diablo III's user score on MetaCritic was an embarrassing 3.6 out of 10. On Amazon.com's product page, the game garnered a rating of 2.5 out of 5, with several comments along the lines of "owned the game for 12 hours -- played for 5 minutes."

4. Regrettable tweet
Did you hear the one about the CFO who was forced to step down after an ill-advised Twitter post? Well, a new business-school case study and cautionary tale was born on Monday, when Francesca Holdings (Nasdaq: FRAN  ) dismissed Gene Morphis as the rapidly growing boutique operator's CFO.

Morphis maintains lively Facebook and Twitter feeds, where he's not afraid to pull any punches. He was relieved of his post after the board delved into some problematic Facebook status updates and Twitter posts.

He would occasionally complain about work, though he's obviously not alone in doing so. Executives at public companies are human, too. However, one Twitter update in particular finds him possibly leaking insider information.

The problem wasn't a March 14 tweet that taunted naysayers after a blowout quarter:

Earnings released. Conference call completed. How do you like me now Mr. Shortie?

Instead, it was an entry posted a week earlier that raised eyebrows.

Board meeting. Good numbers=Happy Board.

Was Morphis tipping his hand early? That's a big no-no.

5. Dishing it out
DISH Network
(Nasdaq: DISH  ) has cracked the code. The country's second largest satellite-television provider is offering customers a premium-priced DVR that eliminates TV ads. We're not just talking about the ability to fly through commercials that's been available on DVRs for years. DISH's new "auto hop" feature nixes the spots completely, save for a brief black flash on the screen.

As a consumer, I'm loving the concept. The reason DISH makes it to the "dumb" list this week is that it will be catching a lot of heat for this from the cable networks and broadcasters that rely on commercials for a sizable chunk of their revenue. Advertisers will want to spend less when they know that they'll be reaching fewer viewers through DISH, and that means the broadcasters will want more out of DISH for access.

As a company that tries to set itself apart from its larger rival on the basis of price, DISH will find it hard to be a low-price leader when content providers will want more after destroying an important part of their business.

Get smart
Don't be a dumb investor. Check out the stocks that the smartest investors are buying. It's a free report! Check it out before it's gone.

The Motley Fool owns shares of Best Buy, Amazon.com, and Activision Blizzard and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Activision Blizzard and Amazon.com and creating a synthetic long position in Activision Blizzard. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insightsmakes 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 owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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

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 May 18, 2012, at 11:32 AM, garymba wrote:

    JC Penney: Yes, "turnarounds" take time, as do new strategies. The problem with JC Penney is simply that the strategy is wrong. This Quarter is the first of many until rock star Ron Johnson admits he was wrong (any bets on THAT happening?). It will be hard for him to do, but easier than enduring the quarters to come. Here's why: Folks are saying that his new, revolutionary strategy is dependent on his ability to re-train consumers to NOT rely on coupons and "deals". They essentially say that consumers were trained by retail marketers to wait for the coupon, then go to the store (i.e., "traffic"). This is flawed reasoning. Even Walmart has sales, and everyone already believes they are the low-cost store.

    The marketers did not "train" consumers to do this, rather they "discovered" through enormous test marketing over decades and centuries that humans LOVE the "deal". (Think of the ancient "sale" signs of dynastic Egypt). Marketers do not "train", they capitalize on studied consumer behaviors. So now, we have the illustrious Ron Johnson saying that he is going to change human behavior using JC Penney as the stimulous? What he missed is that the only thing consumers like more than the "deal" is the "must-have" product. They will sacrifice the deal if they have no choice (think... Apple), but if there is a choice of venue to get essentially the same "product", consumers will want the deal.

    JC Penney will return to coupons and sales eventually, with either Ron Johnson having an epiphony of sorts, or with the next CEO who will need to turnaround the turnaround.

  • Report this Comment On May 18, 2012, at 12:42 PM, Foram wrote:

    To be fair to Blizzard, the MetaCritic score was deliberately being "gamed" to reach an average of 3.7 (i.e. 37, like the error code message that was the bane of so many players on Launch Day). Let's come back to this in a week or so and see how Blizzard's servers are holding up and then let's see how sales of Diably III are holding up in the next quarter or so. It was a black eye, to be sure, but there's a reason why Blizzard games fill 3 or 4 spots on the annual list of the top 10 most-played games. Birthing pains aside, I fully expect Diablo III to take its place on that list this year as well.

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: 1889853, ~/Articles/ArticleHandler.aspx, 9/17/2014 1:52:29 AM

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