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. There's a deduction for that
H&R Block (NYS: HRB) slipped after hosing down its guidance and announcing plans for layoffs and store closures.
If you were wondering whether the tax-prep giant's business was hurting in this age of direct filing, the company just served up three red flags.
H&R Block's now looking for no more than $1.15 a share in earnings on $2.9 billion in revenue. Analysts were banking on a profit of $1.39 a share on $3 billion in revenue. The company will also let go 350 employees, and that's not including the carnage involved in shuttering 200 underperforming stores.
Sure, there will be savings down the road from the resizing efforts, but this is ultimately H&R Block telling investors they need to start thinking smaller.
Yes, it will return to profitability sooner than expected after its first quarterly deficit in years, but the company's revenue outlook for the current quarter came in a bit light. And now that Netflix is planning to dive into a new European market later this year, more losses from its international operations are likely.
One tricky market for Netflix has been Latin America.
"Many banks turn down all e-commerce debit card transactions due to fraud risk, making it a more challenging environment than our other markets," the company confessed in its letter to shareholders.
Really, Netflix? You couldn't have figured this out before you tapped Latin America as your first expansion market outside of North America last fall?
3. Betting on Baidu
It may be pretty hard to disappoint Standard & Poor's analyst Scott Kessler.
Baidu (NAS: BIDU) posted reasonable quarterly results on Tuesday night, but China's leading search engine offered guidance for the current quarter that suggests decelerating growth.
Three different analysts -- including Kessler -- lowered their profit expectations on Baidu after the report. Kessler now sees Baidu earning $4.60 a share this year, down from his earlier $5 target. He also took down his estimate for next year from $7 a share to $6.64 a share.
So far, so natural. Baidu's guidance indicates that the dot-com darling is feeling the pinch of China's contracting economic growth. However, while the other two analysts simply stuck to their original ratings, Kessler actually upgraded shares of Baidu from "Buy" to "Strong Buy."
Just imagine what would've happened if Baidu had a cheerier near-term view!
4. Eat the rich, but not if they're flying on corporate jets
Warren Buffett has some explaining to do after Berkshire Hathaway (NYS: BRK.B) subsidiary NetJets was taken to task for spending $1 million to lobby for tax breaks. The corporate jet-sharing service was successful in its lobbying efforts to clear up a rule that frees its wealthy members from paying the 7.5% ticket tax paid by commercial airline passengers.
This is a smart investment for Net Jets, because it does make its jet-sharing service that much more financially feasible. However, even if Buffett himself doesn't have a hand in the day-to-day operations of NetJets, doesn't it seem just a little hypocritical that a Berkshire Hathaway subsidiary is spending money to make sure its rich clients don't have to pay a flight-based tax that the flying masses still have to pay?
Buffett was the one who threw a live grenade into the class warfare when he suggested that he shouldn't be paying a lower effective tax rate than his secretary. If he wants to practice what he preaches, maybe he should start by curbing NetJets' lobbying efforts.
5. Book it
Barnes & Noble (NYS: BKS) had better stock up on copies of 50 Shades of Activist Investing.
Jana Partners -- a hedge fund with an impressive track record and a knack for meddling -- picked up a 14% stake in the struggling book retailer. We still don't know if Jana will rattle the cage or if it feels that the superstore chain can fight back on its own, but this doesn't seem like a very smart wager.
Barnes & Noble has already suggested carving out its Nook business from its retail empire. However, splitting the company up would only create two problems instead of one. The company's Nook e-reader business is growing, but it's a drain on financial resources, pitted against a larger competitor that says it doesn't mind being misunderstood in its margin-crunching drive to grow market share. The retail bookstore business looks even worse, especially as digital distribution of books and magazines shows no signs of slowing.
A good investment is one that can be flipped for a higher price later, and the catalysts just aren't there this time.
At the time this article was published The Motley Fool owns shares of Baidu and Berkshire Hathaway.Motley Fool newsletter serviceshave recommended buying shares of Netflix, Baidu, and Berkshire Hathaway.Motley Fool newsletter serviceshave recommended writing puts on Barnes & Noble. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.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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