I'm not seeing red this week. I'm only seeing purple.

Every week, I bash a company. I slam its valuation. I take a pile driver to its prospects. The crowd doesn't like it. I get booed for throwing a perfectly good publicly traded company to the mat. I guess that makes me the villain.

In the end, I'm not the evil masked grappler I get made out to be. I come right back, offering three stocks that should outperform the lightweight that I'm throwing around.

Who gets tossed out this week? Come on down, Yahoo! (NASDAQ:YHOO).

Gates of steal
I was optimistic when Carol Bartz stepped in as CEO of the struggling new media company. She was an outsider with a nose for operational prowess. Bartz is a seasoned grower of tech.

Unfortunately, she repeated the same mistakes as her disgraced predecessors when she inked a sucker's deal with Microsoft (NASDAQ:MSFT) yesterday.

There are a few reasons why Yahoo!'s stock suffered a 12% haircut yesterday, and Microsoft inched higher. For starters, this now eliminates the need for Microsoft to buy Yahoo! since it's getting the juiciest piece of Yahoo!'s business -- paid search -- for the next 10 years.

Yahoo! has traded at a higher multiple than its faster growing peers, in part because of its valuable investments in Asia, but also on the hope that Microsoft will return as a buyer. This isn't going to happen now.

Another reason for the selling is that the terms of the deal find Yahoo! sacrificing too much in the long term for the pursuit of near-term incremental cash flow.

After all, shareholders have to accept the cost of letting Microsoft's Bing power its searches and serve as the exclusive provider of paid search ads on query result pages. Yahoo! is shooing away self-serve advertisers. It is having its silver medal in search bronzed, with Microsoft as the new threat to Google (NASDAQ:GOOG).

Microsoft may be offering a healthy slice of the related revenue sharing, but it's no match for the hit on Yahoo!'s reputation. The company that shrewdly acquired paid search pioneer Overture six years ago is letting a software giant that has failed to turn a profit online take over. Letting Bing power the Yahoo.com searches validates a rival; it's a concession that the company's own technology just isn't good enough.

One can always argue that Yahoo! had to do something. Last week's quarterly report found the aging dot-com star's revenue and operating profits falling by 16% and 25% respectively. But why did it have to be this crummy deal with Microsoft?

What is Yahoo! without paid search? Display advertising is a laggard. It's always been hard to monetize free e-mail, photo-sharing, and news. This doesn't mean that Yahoo! is a total flunky. Areas like Flickr, Yahoo! Finance, and Yahoo! Answers remain at the head of their respective classes.

The rub here is that it just got schooled, and by Microsoft of all pupils!

Good news
As I do every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting tossed. Let's go over three new fill-ins.

  • Google -- I'll start with the obvious beneficiary of the search deal. Some argue that Microsoft on Yahoo!'s shoulders will pose a fiercer competitor to Google, but I smell opportunities. After all, once Yahoo! users go through a few Bing-flavored searches next year, they won't take Yahoo.com seriously. It will be a fork in the road. Most will just turn to Bing.com to fire up their searches, but others will also flock to Google. Advertising rates may also inch higher. After all, now that there will be two self-serve paid search platforms to monitor -- instead of three -- the keyword bidding will intensify. The average clickthrough lead on Google has gotten 13% cheaper over the past year, and this should help correct the problematic -- though understandable, considering the recession -- trend.
  • Hewlett-Packard (NYSE:HPQ) -- Bartz still has a few quarters to go before earning her turnaround badge. She rocked at Autodesk (NASDAQ:ADSK), but now she has to worry more about shrinking gracefully than efficiently growing a speedster. Can she be the same kind of margin-widening cost cutter as HP's Mark Hurd? The printing and computing giant has thrived under Hurd, running circles around Dell Computer (NASDAQ:DELL) and artfully dodging the popularity of MacBooks and Asian netbooks to consistently top Wall Street expectations. HP is the proven tech turnaround. Yahoo! just became smaller in Google's rearview mirror.
  • Marchex (NASDAQ:MCHX) -- Advertisers paying more for leads, as a result of Yahoo! shutting down its self-serve platform, will benefit the Web's other lead generators. Marchex is one of my favorites. The local search specialist runs vertical advertising networks, the OpenList local search directory, and even a service that turns online leads into higher-converting phone calls. It also has an enviable portfolio of roughly 200,000 domain names, allowing it to generate its own organic traffic (instead of overpaying, as everyone else will).

Let's get ready to rumble. And tumble.

Other headlines out of the weekly Dumpster:

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Google is a Motley Fool Rule Breakers selection. Dell and Microsoft are Motley Fool Inside Value selections. The Fool owns shares of Autodesk. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz once owned a pair of purple socks. Once. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.