Great Call on VMware! What's Next?

To say that Tuesday was a rough day for VMware (NYSE: VMW  ) shareholders would be like saying that Las Vegas has warm summers. When all was said and done, VMware's stock cratered nearly 25% on the news that its 2008 revenue growth will be "modestly below the previous guidance of 50% growth over 2007." Of course, the announcement that the company's board of directors abruptly hip-checked CEO and founder Diane Greene right out of the company had something to do with it, too.

There are more than 1,300 Motley Fool CAPS investors currently following the ups and downs of VMware and weighing in on its future. Of those, none has been right on the money like CAPS player finabuddy. This player gave the thumbs-up to VMware right after it spun off from EMC (NYSE: EMC  ) in August last year, and then jumped out after the stock's price spiked last November.

finabuddy is one of CAPS' All-Stars -- players with a rating of 80 or greater -- and has managed a stock-picking accuracy of 61%, while racking up 385 points of market outperformance. VMware hasn't been this player's only great call. Here's a look at a few other prescient picks from finabuddy:

Company

Date Picked

Call

Points

CAPS Rating

Novastar Financial

7/23/07

Underperform

66

*

WCI Communities (NYSE: WCI  )

7/24/07

Underperform

47

*

Merrill Lynch (NYSE: MER  )

3/18/08

Underperform

28

*

Data from CAPS.

So what is this investor looking at these days? Here are a few of finabuddy's most recent calls on CAPS:

Company

Date Picked

Call

CAPS Rating

Bank of America (NYSE: BAC  )

7/2/08

Outperform

**

ConocoPhillips (NYSE: COP  )

7/2/08

Outperform

*****

Google (Nasdaq: GOOG  )

7/2/08

Underperform

***

Data from CAPS.

While these picks may not all pan out, they could be a good place to start further research. I've decided to take a closer look at Motley Fool Rule Breakers pick Google.

The never-ending battle over Google
If you hearken back to Dr. Seuss' classic The Butter Battle Book, you'll remember that the Yooks and the Zooks could never find peace with each other because they disagreed over whether bread should be eaten with the butter side up or the butter side down. A similar battle rages among investors today over whether search superstar Google will keep up its torrid growth or fall flat on its face.

As we step into earnings season we're already starting to hear the now familiar chorus of sources saying that this quarter Google will end up disappointing. Last quarter it was the fear that a decrease in ad clicks was going to hurt profits. No such luck -- Google topped Wall Street's expectations by $0.32. Now it's The Wall Street Journal saying that YouTube revenues are stalling and Google's growth in general is getting close to hitting a wall.

At this point I've almost come to expect the Google gang to come out with guns blazing every quarter. However, we could very well see the slowing economy starting to eat into Google's numbers. The Journal's point about slowing growth shouldn't be skipped over either; even if Google continues to innovate and please customers, the sheer size of the company means that growth is almost guaranteed to continue braking.

Meanwhile, the Yooks and the Zooks of the Google battle are taking each other on head-to-head on CAPS. Though Google has gotten a majority of outperform ratings, there are enough players bearish on the stock to stick it with a mediocre three-star rating.

On the bull side, CAPS All-Star TMFBreakerJava thinks that there are still blue skies ahead when it comes to Google's growth potential:

[Google is] the dominant player in the hottest market in the largest economy in the world. I was skittish about issues with pay per click, but one way or another these guys own their space and will find ways to get people to pay for access to that dominant position. There is no end in sight to the growth of the Internet and none to the growth in the use of their services. Hop on board. Would have been a good decision a year ago, two years ago, three years ago... Better to do it now than wait another year or two or three....

On the other side of the fence countering for the bears is abh2lde, who listed a number of reasons why investors should skip Google, including the fact that it's an "extremely overpriced and hyped stock currently" and its "diversification to new areas do not deliver as expected."

So what's your take on Google? Get in the action by clicking over to CAPS. The resources of the investor-intelligence database are absolutely free, and there are more than 110,000 stock pickers chipping in to find the best stocks out there.

More CAPS Foolishness:

Bank of America is a Motley Fool Income Investor selection. VMware and Google are Motley Fool Rule Breakers recommendations. Try any of our Foolish newsletters today, free for 30 days. You'll have access to all of the services' stock recommendations and the reasoning behind them. 

Fool contributor Matt Koppenheffer owns shares of Bank of America, but does not own shares of any of the other companies mentioned. The Fool's disclosure policy made its own great call by eating its bread with boysenberry jam.


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