In February, some investors clamored to buy shares of virtual penny-stock Talbots
Last week, Talbots revealed more dismal tidings. The retailer warned that it expects first-quarter sales to fall by 9.6% to $272 million on a year-over-year basis. Although that top-line figure does beat analysts' dismal expectations, it certainly shows this business is still broken (as it has been for years, really). Talbots will also report a first-quarter loss, compared to a profit this time last year.
Investors' acquisition-rumor-fired fever -- which is really quite similar to the kind of disconnection from reality that often occurs in Vegas casinos -- has buoyed stocks of some pretty pathetic companies lately. Take Avon Products
Last week, rumors that grocery giant Safeway
Safeway has a market cap of $5.72 billion but its enterprise value is about double that. In other words, it's weighed down with debt obligations. Some analysts have also pointed out that Safeway has onerous pension liabilities. How many buyers would sign up under those circumstances? Personally, I don't buy it.
Talbots' stock plunge last week surely shows at least some investors suddenly realized hinging hopes on an acquisition at $3 per share or more was probably a bad gamble. But some Talbots investors still may be waiting for good news that has nothing to do with whether Talbots' business is even capable of being fixed after longtime malaise and ongoing brand damage.
Investors are far better off sticking with stocks of strong companies and holding for the long haul instead of buying up shares of rumor-riddled broken businesses. For example, take Costco
Messing around with broken businesses that have little hope other than a takeover is risky business for investors. Leave the gambling in Vegas. Instead, you should make calculated and well-informed purchases. Fortunately, we've already done a lot of the heavy lifting for you. Learn about The Motley Fool's Top Stock for 2012 by clicking here now.
Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Costco Wholesale. Motley Fool newsletter services have recommended buying shares of Costco Wholesale. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.