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. Sheer squad
Poor lululemon athletica (NASDAQ: LULU  ) shoppers.

They paid a stiff ransom for a pair of black luon yoga pants, and now it turns out that the pants are practically see-through when they stretch.

Spoiler alert: People doing yoga stretch.

Even with Lululemon faulting a supplier as it recalls all of the affected pants that it sold this month, it's the high-end yoga retailer that looks bad here. Affluent shoppers with active lifestyles pay a premium to shop at Lululemon to avoid quality issues, but the Canadian chain has had way too many recalls lately.

The thing is that Lululemon can't afford to mess up. It carries a stiff valuation, and now with more than 200 stores, it's not as if it has limitless expansion. There are only so many markets that will put up with a place selling $100 yoga pants. The retailer is warning that comps will soften here as it waits to restock on black luon pants, but eventually the hard times may come simply because patrons have had enough.

2. Another Penney for your thoughts
J.C. Penney (NYSE: JCP  ) keeps finding new ways to drag itself into this weekly column.

A Bloomberg report shed some unwelcome light on the fact that CEO Ron Johnson and nine executives are taxing shareholders through weekly commutes to the department store chain's headquarters in Texas.

Yes, retail executives travel extensively in their jobs. They're not always at the office. However, at a time when J.C. Penney's bottom line is obliterated by thinning stores, does J.C. Penney really want to be abusing its corporate jets this way?

3. Bitter Harvest
It's never a good sign when auditors bow out of a company, shaking their heads.

That's what the bean counters at Harvest Natural Resources (NYSE: HNR  )  have done, leaving the oil and gas company to delay the filing of its 2012 annual report.

There's a "material weakness" in the company's accounting. Harvest Natural Resources is coming across enough errors that it expects to possibly revise the past three years of financial statements.

Trust is a major part of any investing relationship, and right now Harvest Natural Resources just doesn't have it.

4. EA: It's in the blame
Things aren't going well at Electronic Arts (NASDAQ: EA  ) , and the CEO is taking the fall.

John Riccitiello will be moving on by the end of next week, resigning as CEO and stepping down from the boardroom.

"We have mutually agreed that this is the right time for a leadership transition," the press release offers, but everyone knows that these decisions are rarely mutually agreed upon. Someone's getting booted.

It's an odd move given that shares of EA hit a fresh 52-week high just last week.

EA's financial performance doesn't match that 52-week stock chart, but it's not just EA that's struggling to grow in this environment. The entire video game industry is struggling at a time when die-hard gamers are waiting for new consoles to raise the stakes and mainstream gamers have moved on to cheaper and easier social and casual games.

EA has actually done more than its peers to embrace the social and casual games that have exploded in popularity at the expense of the console industry, which has suffered three brutal years of sharply declining sales.

A new CEO won't change that.

5. Scholastic flunks out
Scholastic (NASDAQ: SCHL  ) shares fell 14% yesterday after a dreary quarterly report.

The publisher of children books and educational materials posted a much wider loss than Wall Street was expecting on a 19% plunge in revenue.

It really shouldn't come as a surprise that Scholastic's in trouble during the seasonally sleepy fiscal third quarter. Just as Scholastic felt the pinch after the Harry Potter book series came to a close, it was up against the prior year's success of the Hunger Games trilogy.

However, it's more than just that. As schools and kids turn to tablets and e-readers, the demand for Scholastic's page-turners is diminishing. Yes, Scholastic has digital initiatives on its own. It's not stupid. It's in the education business!

However, it will take a long time before digital revenue offsets the revenue generated from the business that it's disrupting. Wall Street should've known better in assessing Scholastic's actual state. It's not stupid. It's in the money-making business!

Make a smart move next week
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  • Report this Comment On March 22, 2013, at 10:53 AM, EllenBrandtPhD wrote:

    Re HNR:

    The Shorts have already had three days of absurdly high volume to BOO! and get to cover. If they haven't been able to do it, chances are that those still Long - which remains almost everyone - are hunkering down and refusing to cooperate until the next inevitable bid for assets.

    Management is still acting foolishly by not talking to shareholders. But some might consider that an indication that they are very deep into new negotiations with buyers already and don't want to leak information.

    I disagree with this, as many do. I think you talk to people, anyway, and just say No Comment if they get too persistent.

    But here is just one piece of intriguing news that the Long side finds encouraging:

    http://www.bloomberg.com/news/2013-03-18/tnk-bp-billionaires...

    Other reasons to hold on:

    Chevron and Eni and all the Russians blithely moving back into Venezuela, no matter how hot and heavy the rhetoric gets.

    And the sheer silliness of that rhetoric - more a Telenovela now than actual Geopolitics - makes everyone wonder how long the Chavistas Lite can possibly continue to keep on keeping on as before. Either they have to change dramtically, or strong pressure to do so will now come from without.

    My sources in Texas confirm that the company which has prepared Harvest's resources estimates for quite some time is at the very top of the petroleum industry's "trusted and respected" list.

    And despite what you hear from the Shorter Distorters in these "for the Short side" blogs and message boards, HNR's top management team and Board of Directors are all generally well thought of, too.

    The whole situation is weirder than bleep now.

    It is most reminsicent of what happened with FSIN despite being in a different industry. And as we all know, the Shorts lost big there, and the Longs came out smelling like roses.

  • Report this Comment On March 22, 2013, at 10:56 AM, EllenBrandtPhD wrote:

    That Bloomie's link did not print properly, so I will try it again:

    http://www.bloomberg.com/news/2013-03-18/tnk-bp-billionaires...

  • Report this Comment On March 22, 2013, at 1:16 PM, EllenBrandtPhD wrote:

    Yahoo version of even the Fool stories being blocked from commentary - which is a good sign, actually. Shows some big Shorts left in know they need to cover.

    But that being the case, let me comment in this NON-blocked version of this story on the incessant bashing commentary of "blueballz" and friends on the Yahoo message board about the Debt Covenants:

    So what else is new???

    Clearly, the Debt Covenants involving this company or ANY company are why the Debt-oriented PermaShorts target this or any other particular stock.

    But for the umpteenth time, it is besides the point here.

    The vast, vast majority of Longs in this stock DON"T WANT Harvest to be propped up as a potentially producing company, unless it gets sufficient money in from a Petrodelta sale to do so - as was the case with the Pertamina buy.

    If a similar good deal for Petrodelta from the Russians or someone else with instant good relationships with the Chavistas comes in fast - Yes, take it and use the money for the other promising ventures.

    If not, sell the entire company! Repay any recalcitrant debtholders and let shareholders benefit as much as possible - including all the top managers and Board members with lots and lots of shares.

    So the only thing anyone is really quibbling about is whether they're going to sell Petrodelta only or sell everything and at what price or prices.

    The current market cap is so absurd, it is so absurd.

    It is now less than 25 percent of the value of the Petrodelta failed deal ALONE! without counting any other assets.

    THAT is the basis on which those Long the stock are still Long. And most of those holders are very sophisticated institutions, not itty bitty Retail investors.

    If there are 10 or 15 itty bitty Retail investors in this stock, I'd be surprised.

    So continuing to BOO! us literally every five minutes is now insane.

  • Report this Comment On March 27, 2013, at 10:14 AM, EllenBrandtPhD wrote:

    Changes in Short interest announced today show HNR stock in now in the "Mexican standoff" phase - quite Bullish, really, considering all the frivolous stock price lawsuits and Yahoo citing them every three minutes.

    Short interest down to 13 percent, meaning Shorts didn't have much luck luring in new companions during those two high volume dump days.

    And implied volatility of the options down sharply - which, when you have a "controversy," is also generally good.

    Big holders on the Long side mostly staying very staunch.

    On the geopolitical front, stock probably rallied yesterday on news that the new Pope is likely going to visit Venezuela shortly.

    Pope Francis may just be the catalyst needed to provide a bridge between the Far Left in Latin America and the Western rule of law, which says you don't steal assets from anyone and distribute them to others, even if those you're stealing from are oil companies which you dislike.

    In any case, it is likely that HNR will now not announce anything of note until after the Venezuelan election on April 14th.

    And the path of least resistance for the stock may finally be UP.

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