Palm Will Burn Your Portfolio

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Palm (NASDAQ:PALM) is the worst stock in the world. Own it, and it'll burn you. Why? One word: iPhone. And one more: BlackBerry. And Nokia. And ... well, you get the picture. Once a star, Palm has become the smartphone industry equivalent of an out-of-work actor.

Accordingly, many in our 110,000-person-strong Motley Fool CAPS investing community have abandoned their belief in the stock as an outperformer:

Note: data current as of July 29, 2008.

"I own and love my Centro. I'm not convinced of the long-term prospects of the Palm OS though," wrote CAPS investor ZenLunatic99 in a pitch from earlier this month. "I've had three units over the last 5 years and they all operate in a strikingly similar manner. No pizazz."

Palm, in other words, has lost its mojo. And unlike in Austin Powers: The Spy Who Shagged Me, there's no Dr. Evil from whom to win it back. Apple (NASDAQ:AAPL), Research In Motion (NASDAQ:RIMM), and Nokia (NYSE:NOK) long ago made off with whatever it was that had made Palm and its Treo special.

Researcher Canalys reports that, in the fourth quarter, Palm OS devices trailed the iPhone, the BlackBerry, and devices based on Microsoft's (NASDAQ:MSFT) Windows Mobile in terms of North American market share. (The irony? Palm licenses Windows Mobile for some of its smartphones.)

Globally, Palm is a bit player like Motorola (NYSE:MOT) and Sony Ericsson, a joint venture between Japan's Sony and Sweden's LM Ericsson (NASDAQ:ERIC):

Source: Gartner. Market share is reported for smartphones.
*In percentage points.

But the numbers would get worse. In June, Palm reported a 26% decline in second-quarter revenue and a $0.40-per-share net loss. Contrast that with Apple's results, which included $419 million in iPhone revenue -- 41% more than the $296 million Palm had earned.

Where have all the geniuses gone?
I blame the brain drain; Palm doesn't attract the industry's top talent the way it used to. Sure, smart people work at Palm. Some are undoubtedly geniuses. But the man most credited with the breakthroughs that have led to today's smartphones -- Jeff Hawkins -- no longer runs product development. His official Palm bio says he's the company's founder and "Member of Executive Team," whatever that means.

Hawkins has been a part-timer since at least early 2007. We can't know whether his half-hearted commitment was in any way responsible for the disaster that was the Foleo. What we do know is Foleo cost Palm time and investors money. So much money that Bono and his investing mates swept in to rescue the company, as if it were the subject of some sort of save-the-rainforest concert.

To be fair, Palm has added fresh blood in recent years: Executive chairman Jon Rubinstein and senior vice president of product design Mike Bell are both from Apple. Yet the numbers say they'll need at least a Treo-sized home run to turn the company around. Centro, good though it may be, at $99 doesn't have the pricing power to fill Palm's coffers.

Finally, there's management: Palm CEO Ed Colligan, a long-termer who appears to be genuinely passionate about the business, has a poor track record for encouraging innovation.

Worst. Stock. Ever?
Which brings us back to the beginning; with well-funded competition, poor financials, and borderline management, Palm is the worst stock in this burn contest and perhaps in the world -- the sort that will make your portfolio bleed red.

But that's my take. What's yours? Think Palm is heading further south? Click here and rate the stock "underperform" in Motley Fool CAPS. We'll tally your votes in the days ahead and then reveal your choice for the worst of the worst.