I rarely make unhedged options trades, but yesterday I bought a chunk of Motorola (MOT) July $6 puts. This is a bet that Motorola’s stock price will drop by more than 20% by July – preferably by April 29th when the company reports Q1 earnings.
Here are 5 reasons I’m betting against Motorola.
1) Last Quarter Stunk
Despite having a very hot product in its Droid smartphone, Motorola reported a pretty lousy fourth-quarter earnings report, complete with a lousy outlook for Q1.
2) Android Competition at Verizon is Heating Up
3) Apple (AAPL) is Likely to Release a New iPhone This Summer
Apple has released a new iPhone model every summer for the past three years, and that my friend is a pattern. Plus, Gizmodo just released a report unveiling what is almost definitely a prototype for a new iPhone. This phone will definitely rule at AT&T (T). And if it makes it way to Verizon – issue $#2 is an even bigger problem for Motorola.
4) The Stock is Up In the Face of Bad News
Motorola’s stock price has jumped about over 25% off the January lows despite the fact that there has been nothing but lousy news since then. Competition in the smartphone market has gotten so bad that Palm (PALM) is hanging on for dear life despite having quality products, and the Android-phone market is quickly becoming oversaturated, with even Lenovo throwing its hat into the mix.
5) Motorola Has a Big Legacy Dumb Phone Business
The smartphone market is showing pretty decent growth, but the non-smartphone portion of the mobile-phone market is quickly stagnating. MOT’s dumb phone weakness has been enough to offset the strength of the Droid, and there’s no reason to think that will change soon.
6) Smartphone Pricing is in the Crapper
With the exception of the iPhone, smartphones have become so commodottized that you can pretty get a decent one for a penny on Amazon.
Disclosure: short MOT through put options, long AAPL stock, long RIMM stock
P.S. Are you by any chance a fan of mixed martial arts? If so – read my review of BJ Penn’s new book Why I Fight
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