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This Week's 5 Dumbest Stock Moves

By Rick Munarriz - Oct 5, 2012 at 10:03AM

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Don't let stupid happen to you.

Stupidity is contagious. It gets us all from time to time. Even respectable companies can catch it. As I do every week, let's take a look at five dumb financial events that may make your head spin.

1. Juicy goes dry
Fifth & Pacific
(KATE) tumbled on Tuesday after hosing down its outlook.

The company behind the Juicy Couture, Lucky Brand, and kate spade apparel brands is now expecting to deliver adjusted EBITDA of $100 million to $110 million this fiscal year, well short of the $125 million to $140 million that it was originally forecasting.

Fifth & Pacific claims that Lucky Brand and kate spade are doing just fine. Weakness at Juicy Couture is the problem.

This was the company previously known as Liz Claiborne. It decided to unload its namesake brand to tap into the greater upside of the three brands that were earlier in their fashion life cycle. In retrospect, maybe Fifth & Pacific sold the wrong brand.

2. Chipping off Chipotle
 When David Einhorn speaks, people listen.

The billionaire hedge fund manager has a knack for moving stocks, so investors tuned in on Tuesday to see which stock he would bash during the annual Value Investing Congress.

Some will argue that he chose this year's target well. Shares of Chipotle Mexican Grill (CMG 4.59%) tumbled 4% on Tuesday after Einhorn singled out the popular burrito roller as a stock worth shorting.

Chipotle has a lofty earnings multiple, trades at a premium to its current growth rate, and has had some hiring mishaps. However, Einhorn threw away a perfectly good bearish thesis by introducing Taco Bell into the mix.

Arguing that new menu additions at Taco Bell will hurt Chipotle misses the mark. Chipotle and Taco Bell aren't necessarily substitutes for one another. Yes, Taco Bell sold 100 million Doritos Locos tacos during the second quarter after its springtime introduction. Chipotle still managed to post an 8% spike in comps during the period. Taco Bell's summertime Cantina Bell rollout is more in line with Chipotle's offerings, but that line isn't generating the critical raves that Taco Bell got with its Doritos-dusted tacos.

What will Einhorn say when Chipotle reports healthy third-quarter comps later this month?

3. The HP weigh
Value investors jumping on Hewlett-Packard (HPQ 5.38%) in recent weeks -- arguing that the PC giant is a steal at four times earnings -- may want to recheck the "E" in the company's forward P/E ratio.

Analysts were expecting HP to earn $4.18 a share in the next fiscal year that starts next month, a minor improvement over the $4.06 a share that the company is likely to earn for its soon-to-end fiscal year. Well, HP shocked the market during its analyst day on Wednesday, warning of a "broad based profit decline" in the year ahead. HP's now expecting to earn between $3.40 a share to $3.60 a share in the upcoming fiscal year.

Surely there will be some value pundit out there arguing that HP is cheap at five times forward earnings, but negative trend can't be ignored. Low P/E ratios can be misleading.

4. Waiting to exhale
ArQule (ARQL) lost more than half of its value on Tuesday after the fledgling pharmaceutical company revealed that it will discontinue a clinical trial on its once promising lung-cancer drug.

This is the second setback for the company's lead drug candidate. It had to cut a previous clinical trial short for safety issues. Those issues have been resolved, but now the bigger fear is that the drug's efficacy may not be any better than a placebo in the treatment of lung cancer.

Ouch.

A whopping 27.2 million shares traded hands in a single day, and that's pretty significant since it's a little less than half of ArQule's entire float.

5. Data storage news that you'd rather forget
There weren't too many companies reporting earnings this week, leaving more investors to notice Xyratex's (NASDAQ: XRTX) belly flop.

The provider of enterprise data storage systems came up short in its latest quarter, posting an adjusted profit of $0.37 a share when Wall Street was holding out for net income of $0.44 a share. A miss is bad, but Xyratex's outlook for the new quarter is even worse.

Xyratex now expects to report tweaked net income between $0.15 a share to $0.43 a share on $235 million to $285 million in revenue. Investors grow uncomfortable with wide ranges. The move implies limited visibility. However, the problem here is that even the high end of its range is well short of the $0.49 a share in earnings and $328 million in revenue that analysts were forecasting.

Where's that delete button again?

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Stocks Mentioned

HP Inc. Stock Quote
HP Inc.
HPQ
$38.75 (5.38%) $1.98
Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
CMG
$1,402.42 (4.59%) $61.51
Kate Spade & Company Stock Quote
Kate Spade & Company
KATE
ArQule, Inc. Stock Quote
ArQule, Inc.
ARQL

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