Thursday, July 12, 2007
Keep your eyes on Motorola today.
After the close of trading yesterday, Motorola (MOT) announced that its cell phone unit wouldn't turn a profit until at least 2008. The company also announced that it would be posting a loss of 2-4 cents per share for the second quarter. Wall Street analysts were looking for a profit of 2-4 cents.
No matter how you spin it, this is bad news for Motorola. And it will be interesting to see how the stock responds.
Motorola shares are already down about 30% from their highs reached last November. The company is struggling to turn around its cell phone business. And, even though MOT warned last February that the first half of 2007 would be "rocky," CEO Ed Zander preached optimism and virtually promised blue skies ahead.
Zander's words were strong enough to persuade shareholders to reject activist investor Carl Icahn's bid for a board seat just two months ago. That vote probably wouldn't be quite the same if it were held today.
Motorola's earnings warning is definitely bad news for the company. But it may not be bad news for the stock.
As you can see from the following chart, the stock is already quite depressed...
It's quite possible that this bad news is already factored into the stock price.
MOT shares lost 25 cents in aftermarket trading following the earnings announcement. But the stock was up 33 cents during regular trading. So the earnings warning didn't even knock MOT into the red for the day. And this could lead to a very profitable trade.
Here's what I mean...
There are very few certainties in the stock market. But one trade that almost always turns a profit is to buy stocks that act well in the face of bad news.
Common sense dictates that when a company announces bad news, then the share price should suffer. When that doesn't happen, then it's a pretty good indication that the stock is already "sold out." The sellers are exhausted, and just a little bit of buying interest can spark a rally in the stock.
I don't know if that will turn out to be the case with Motorola. But I'll be watching it closely today. If the stock can manage to hold above $17.50, then it will probably be sharply higher over the next few months.
Best regards and good trading,
U.S. dollar approaching 2005 low.
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