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. Game over
There seems to be no signs of bottoming out for the video game industry. After three years of steady declines, February proved to be another bad month for the companies catering to diehard gamers.

NPD Group reported on Thursday night that video game software sales plunged 27% in February. Keep in mind that this it on top of -- or below -- a 20% plunge last February.

Cynics will argue that NPD Group's gauge measures only traditional retail sales. However, digital sales haven't been enough to offset the gaming industry's incessant slide.

Why does this item top the list of dumb stock moves? Well, the country's two largest video game companies just hit fresh 52-week highs. Top dog Activision Blizzard (NASDAQ: ATVI  ) hit a four-year high yesterday, even though analysts see revenue and earnings declining by 15% and 28%, respectively, this year.

That just doesn't seem right.

2. Penney for your thoughts
J.C. Penney (NYSE: JCP  ) rallied earlier in the week on a rumor that CEO Ron Johnson would be getting fired.

Well, that didn't happen -- and a company spokesman even cleared up that Johnson has no intention of resigning in the near future.

Some seem to believe that Johnson will be able to keep his job if he's able to stop the brutal slide in sales. J.C. Penney's sales plunged 25% last year. However, that seems like a terrible approach. J.C. Penney saw its net sales fall nearly $4.3 billion this past year. Sales don't need to hold firm here. J.C. Penney needs to make back that $4.3 billion top-line shortfall, and even then it will merely be back to where it was a year ago when sales were so bad that Johnson was brought in to begin wtih.

The news just doesn't get any easier for the unfortunate mall chain.

Later in the week, reports indicated that lender CIT Group will begin charging J.C. Penney's vendors a 1% surcharge on invoices to offset the chain's growing credit risk. You just know that this isn't going to go down well with the chain's suppliers. They're already taking a risk selling to a fading retailer and now they have to pay a premium for that right?

I don't think so.

3. Carnival gets sea sick again
Is it merely a coincidence that Carnival (NYSE: CCL  ) continues to be the company behind cruise ship mishaps?

Carnival's Dream suffered intermittent power outages on Wednesday night after its backup diesel generator malfunctioned.

Thankfully the ship was docked in St. Maarten at the time, and not stuck on the high seas as we saw last month with the Carnival Triumph.

Carnival probably could've tried to sail back home to Florida, but it didn't want to chance another reputation-crumbling blunder. It chose to fly everyone back home of out St. Maarten, giving passengers pro-rated refunds and a 50% rebate for a future cruise.

Carnival may have done the right thing, but this isn't merely about inconveniencing the passengers on the boat and upsetting the booked passengers that were flying into Florida to start their cruise on the ship this weekend by canceling that cruise.

Carnival's going to have a hard time filling cabins unless it discounts aggressively here. That may be good news for opportunistic deal seekers, but it's bad news for Carnival and the cruise industry.

4. Renren & Stimpy
Renren
(NYSE: RENN  ) opened 4% lower on Monday. The leading social networking website operator in China posted better-than-expected quarterly results, but disappointed analysts with revenue guidance for the current quarter that fell short of expectations.

That's normal. Mixed results where the outlook is a letdown will typically drag a stock lower. However, this item makes the cut because it's Wall Street that made a dumb call.

Analysts were targeting marginal sequential improvement for the current quarter, but Renren sees revenue sliding by as much as 10%. This would normally be a cause for alarm, but apparently the pros modeling Renren were asleep at the wheel.

The first quarter is a seasonally sleepy period in China, and things were compounded by the Chinese New Year coming in 18 days late this time around. Nearly every Chinese dot-com that has posted results this season has offered up guidance that calls for a quarter-over-quarter decline. The only two standouts are two companies growing substantially faster than Renren.

Wall Street had no reason to expect Renren to buck the trend when every comparable company was issuing lukewarm guidance. Renren had a strong report, and analysts blew it. Fittingly enough, the stock went on to mover nicely higher throughout the week after the soft open.

5. We're not doubling in Dublin
Velti (NASDAQOTH: VELTF  ) fell sharply after the Ireland-based mobile marketing specialist posted a shockingly bad quarterly report.

Velti stunned investors with a sharp loss at a time when analysts were braced for a juicy profit. Velti's top line also fell woefully short of expectations.

The near term is going to get even messier. Velti's eyeing revenue of $255 million to $280 million this year. Wall Street was perching itself closer to $340 million.

The pros are speechless. One analyst -- Jefferies' Peter Misek -- downgraded the stock and whacked his price target from $8 to $2.15.

Mobile marketing hasn't been the moneymaker that many were expecting.

It's not too late to follow the smart money
With so many of the big finance firms getting bad press these days, it may be a "greedy when others are fearful" moment. Not surprisingly, some of Warren Buffett's biggest investments are in the space. In The Motley Fool's free report, "The Stocks Only the Smartest Investors Are Buying," you can learn about a small, under-the-radar bank that's too tiny for Buffett's billions. Too bad, because it has better operating metrics than his favorites. Just click here to keep reading.


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  • Report this Comment On March 15, 2013, at 9:49 PM, techperson wrote:

    I call BS on #5. Nobody was looking for $340 million this year, that was the 2014 number. The 2013 estimate was $278 million, and they guided for $255 million to $280 million.

    Just ask yourself if you will pay 5 times earnings for 40% growth.

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