This Week's 5 Dumbest Stock Moves
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 this week that may make your head spin.
1. Netflix buries the lede
A funny thing happened with the way Netflix (NAS: NFLX) describes itself this week in its press releases. Instead of referring to Netflix as a place with "more than 25 million members" around the world, Netflix is now serving "more than 20 million streaming members" around the world.
Yes, Netflix is now keying in solely on its streaming subscribers, but why 20 million? Are things worse than last month's guidance suggests? Netflix had 22.93 million streaming subscribers at the end of the third quarter, and its guidance calls for it to close the current quarter with 21.6 million to 23.5 million streaming couch potatoes.
One can argue that Netflix favors round numbers like 20 million and 25 million, but earlier this year it had no problem referring to itself as a service with "more than 23 million" members worldwide.
After months of confusing shoppers with its shorter domain through ads, apps, and even the O.co Coliseum in Oakland where the Raiders, A's, and Golden State Warriors play, Overstock is going back to its original moniker.
It will still keep O.co for its mobile and international initiatives -- and even the stadium name -- but it's retreating quickly to Overstock.com for the holidays.
A company executive confesses to Advertising Age that too many people confused O.co with O.com (which is currently not available for registration). I'm sure the folks at Advertising Age had a good laugh about the botched strategy that will continue to send mixed messages.
3. The price is right at GameStop
GameStop (NYS: GME) shares took a hit after another disappointing quarterly report yesterday. However, this is the second quarter in a row that finds the company sticking to its fiscal 2011 profit guidance, while hosing down its revenue and same-store sales growth projections.
This isn't a matter of margin resiliency. GameStop's guidance is getting worse. The video game retailer has been buying back its stock like there's no tomorrow. The move whittles away at the shares outstanding denominator in the EPS equation, masking the weakness in the numerator (i.e., earnings).
There is nothing wrong with share repurchase plans, especially if a company is able to buy back stock at the bottom. However, physical distribution -- and the resale of physical goods -- isn't a good long-term bet in the realm of video gaming.
4. Linked out
Corporate-minded social networking website LinkedIn (NAS: LNKD) completed its secondary offering this week, but it was flooded by a larger number of insiders selling than the market originally expected.
Secondary offerings aren't fatal. It's a popular course these days for companies that go public with a limited number of shares offered, only to hit the market with a secondary offering at higher prices several months later.
Insiders selling shares aren't dilutive, but they do beef up the float. In short, the thin supply that was orchestrated before is now no longer a factor keeping the shares afloat. Given LinkedIn's lofty valuation -- the shares are trading for 258 times next year's earnings -- don't be surprised if the stock is trading lower a few months from now.
5. Joe DiMaggio hangs up his fund-managing cleats
Shares of mutual fund giant Legg Mason (NYS: LM) slipped 3% yesterday, worse than the soft market as a whole, after announcing that legendary fund manager Bill Miller would step down as co-manager of the Legg Mason Capital Management Value Trust. He'll continue to serve as chairman and co-manage a smaller fund.
There's no one that can take away Miller's amazing streak. His flagship fund beat the market 15 years in a row from 1991 through 2005. This is unlikely to happen again in our lifetime. It's a hitting streak of DiMaggio proportions. However, the fund's performance since then has been abysmal. The fund has lost badly to the S&P 500 in four of the five past years, including a gut-wrenching 55% defacing in 2008. The same fund that once watched over more than $20 billion in assets four years ago is now a $2.8 billion vehicle today.
Peter Lynch has been able to carve out a guru career because he went out on top at Fidelity Magellan. Miller won't have that kind of marketable luxury, making it odd that Legg Mason shares would get pounded on the news.
If you want to track these companies to make sure that they don't make another dumb mistake soon, consider adding them to My Watchlist.
- AddOverstock.comto My Watchlist.
- AddNetflixto My Watchlist.
- AddLinkedInto My Watchlist.
- AddLegg Masonto My Watchlist.
- AddGameStopto My Watchlist.
At the time this article was published The Motley Fool owns shares of GameStop. Motley Fool newsletter services have recommended buying shares of Netflix. Motley Fool newsletter services have recommended writing covered calls in GameStop. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Netflix. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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