The house rules are simple in this weekly column.

  • I bash a stock that I think is heading lower.
  • I offset the sting by recommending three stocks as portfolio replacements.

Who gets tossed out this week? Come on down, Expedia (Nasdaq: EXPE).

Fasten your seat belts
The popular travel portal has been grounded lately. The stock went nowhere in 2010, and there's unnecessary drama early in 2011.

A ticketing and flight information dispute with AMR (NYSE: AMR) leaves Expedia as the latest travel website to have American and American Eagle flights pulled from its booking options. Expedia's stock opened higher this morning on reports that AMR and Expedia were negotiating a settlement, but the damage has been done.

This is now a lose-lose situation for Expedia. If it's able to come to an agreement with AMR, it would be at the expense of yielding either control or sacrificing margins. If it moves on without AMR flights, it would be seen as an incomplete portal.

It's true that there is no such thing as a complete travel-booking site. However, the Expedia vs. AMR story has trickled over into mainstream news. This creates confusion with consumers, who -- at the very least -- now realize that they can't rely on a single travel site when it comes to making plans.

Comparison shopping across several sites won't help Expedia. Conversion rates will diminish, even though the costs tied to generating leads won't follow suit. This can be a real momentum-swaying moment. Expedia has beaten Wall Street profit targets in each of the past four quarters, but that trend would reverse in 2011 if margins contract and revenue takes a jab.

Sure, Expedia shares appear pretty cheap. The travel giant trades at a mere 12 times forward earnings. Analysts see revenue and earnings growing 13% and 16%, respectively, in 2011. My theory is that Expedia won't get anywhere near those targets, particularly on the bottom line.

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 the heave-ho. Let's go over the three fill-ins.

  • (Nasdaq: CTRP): China's leading travel portal is a speed freak. Revenue rose 49% in its latest quarter, with earnings climbing even more. Ctrip's shares trade at a hefty premium to the slower travel-smiths closer to home, but 34 times forward earnings isn't outrageous, given Ctrip's growth. Buying into Ctrip also sidesteps the fisticuffs that are bound to fly between air carriers and stateside portals in the coming months. The same thesis applies to India's MakeMyTrip (Nasdaq: MMYT), but that stock's valuation is well ahead of its fundamentals at the moment.
  • Google (Nasdaq: GOOG): AMR isn't the only company to lock horns with Expedia these days. Expedia's TripAdvisor website turned heads when it pulled its user reviews from a component of Google's mapping website. Why would someone want to butt heads with Big G? Google is another stock that went nowhere in 2010, but the company kept growing with every passing quarter. The end result is that Google's valuation is attractive again, given its forward multiple in the high teens. Online advertising will continue to be Google's high-margin candy. If it's able to complete its $700 million acquisition of travel-software giant ITA Software, it will become an even bigger thorn in Expedia's side.
  • (Nasdaq: PCLN): I was torn between Travelzoo (Nasdaq: TZOO) and, because these two companies actually stand to benefit from the discord between carriers and portals. What will happen to airlines with greater uncertainty in filling flights? My guess is that they will have to rely on priceline's "name your price" portal or advertise through Travelzoo's Top 20 travel deal emails to fill empty seats. I'm giving a slight edge on valuation, though both companies are positioned well for the domestic chaos.

I'm sorry, Expedia. The visibility isn't clear enough for your shares to take off.

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Longtime Fool contributor Rick Munarriz doesn't mind taking out the garbage every so often. He does not own 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.