I wrestle with this column every week. I'm an optimist at heart, so it's against my nature to pound on a stock when it's already pinned to the mat. However, not every stock is a winner. Some stocks deserve the sleeper holds. Those companies get me pointing out the reasons why the unmasked stock is heading for a fall, long before the "one, two, three" count is said and done.

The upside is that I don't just body-slam a stock unless I have three suitable replacements that should outperform it. Who gets tossed out this week? Come on down, World Wrestling Entertainment (NYSE:WWE).

Going down for the count
Skim the wrestling giant's latest quarterly report, and you may be quick to dismiss my bearish stance.

World Wrestling Entertainment saw revenue climb by 7% to $138.8 during the second quarter. Earnings nearly tripled to $0.27 a share. Clearly, I shouldn't be messing with the McMahon family.

Unfortunately, things aren't as rosy as the numbers appear at first glance. The company's premier pay-per-view event, WrestleMania XXV, occurred during the quarter, padding the top line by $32.2 million and the bottom line by $0.13 a share. WrestleMania XXIV took place during the first quarter in 2008.

The apples-to-apples method would be to stack up the first half of 2009 against the first half of 2008. On that basis, things aren't as cheery. Revenue actually fell by 16%. Operating profits improved by 15% because of commendable cost-cutting, but you can slash overhead only so far if your format's popularity has peaked.

Wrestling fans are moving on. The grittier -- and more realistic -- mixed-martial-arts leagues are taking over. You see it in the dwindling number of fans buying in to the annual WrestleMania event.





WrestleMania XXIII



WrestleMania XXIV



WrestleMania XXV


Some will argue that the crummy economy is to blame this year, but were things so bleak in April 2008, when WrestleMania XXIV came around?

Income investors may not care. They're attracted to the fat 6.7% yield, given the quarterly dividends of $0.24 a share. But are they aware that the company is paying out more than it's earning? Analysts see WWE posting a profit of $0.67 a share this year and $0.75 a share next year. In the company's defense, it has a cash-rich balance sheet and healthy cash flow. However, if the over-the-top storylines and incendiary personalities have truly been worn thin, whom is Wall Street kidding with its projections of a turnaround in 2010? Analysts have overestimated WWE's earnings potential in two of the past four quarters, and they appear to be doing it again.

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.

  • Speedway Motorsports (NYSE:TRK): The sponsor-fueled auto-racing industry has pulled in for a pit stop this year. Profitability at International Speedway (NASDAQ:ISCA) and Speedway Motorsports will be down sharply this year. However, there isn't a NASCAR-killer out there the way UFC and other mixed-martial arts leagues are threatening WWE. Then we get to a matter of valuation. WWE and Speedway closed within pennies of one another last night. However, analysts see Speedway Motorsports earning $1.62 a share next year, or more than twice the $0.75 a share they see out of WWE. So while WWE trades at a lofty 19 times next year's earnings, Speedway Motorsports clocks in at a mere 9 times projected profitability.
  • Tix (NASDAQ:TIXC): Tix runs the popular Tix4Tonight outlets through Las Vegas for last-minute show discounts. It operates other ticketing platforms, stages live events, and manages the retail stores of traveling museum exhibits. Revenue has inched 17% higher through the first half of 2009, with a small profit reversing last year's deficit. This compares favorably with Broadway.com ticketing specialist Hollywood Media (NASDAQ:HOLL), which has posted a loss and revenue declines through the first half of the year.
  • Marvel (NYSE:MVL): Yes, I realize that Disney (NYSE:DIS) is buying Marvel. As a Disney shareholder, I have no problem recommending Marvel at this point, especially since it's trading at a slight discount to the deal price. I don't see a higher Marvel bid coming from a third party, but the situation appears pretty steady from this perch. If Disney is the worst-case scenario, I'll take it! In Marvel, Disney will be able to exploit comic book superheroes the same way that WWE once cashed in on its more colorful characters. Disney also has its mouse gloves all over sports programming through ESPN. The synergies are real.

Sorry, wrestling fans. It's time to tag out of this match.

Other headlines out of the weekly garbage:

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Longtime Fool contributor Rick Munarriz once met Hulk Hogan. The guy is huge! He owns shares of Disney and 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.