3 Reasons to Sell Motorola Today

By Dave Mock
November 30, 2009 | Comments (2)

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The turmoil in the markets makes it too easy to justify selling any stock these days. Yet, while panic never helps investors, it's still a good idea to play devil's advocate with investments.

Consider electronics maker Motorola (NYSE: MOT). Though the company has been stoking a comeback, you'll find more than a few of the 2,358 Motley Fool CAPS members weighing in on the company offer reasons to be bearish.

Here at the Motley Fool, we like to consider both the good and bad sides of an investment, so in this article, I've highlighted three of the main bearish arguments on Motorola today. Be sure to read the bullish side as well, and then weigh in with your own comments below or rate Motorola in CAPS.                                             

1. High-priced shares
Motorola's shares have marked some big gains this year and now trade at a forward earnings multiple of about 29. Some investors think that relative to other smartphone makers such as Nokia (NYSE: NOK) and newly discounted Research In Motion (Nasdaq: RIMM) that have larger market shares, Motorola is significantly overvalued and prefer to wait for a cheaper price.                           

2. Internal structure issues
Sales in all three of Motorola's divisions continue to drop: Third-quarter sales in its mobile devices business fell 46%, and its set-top box division is facing increasing pressure from Cisco Systems (Nasdaq: CSCO) and the threat of content providers using the Internet to deliver video. While other companies such as Hewlett-Packard (NYSE: HPQ) are bulking up with acquisitions, Motorola is looking to potentially break itself up but is taking a long time to decide the best path forward.

3. Smartphone competition
While Apple (Nasdaq: AAPL) continued to show strength in the third quarter, others like Motorola and Sony's and LM Ericsson's (Nasdaq: ERIC) venture Sony Ericsson continued to struggle, with Motorola selling the least number of phones since its first quarter of 2001. Competition is expected to be fierce this holiday season and the price of Motorola's recently released Droid is already being slashed by some retailers.                          

To see details of what CAPS members are saying now about Motorola, just click on over to Motley Fool CAPS and have a look -- or add your own thoughts directly to this story in the comments box below.

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Fool contributor Dave Mock has three very good reasons why he doesn't bet on sports, and they all have to do with losing money. He owns shares of Motorola in a direct investment plan. Nokia is an Inside Value recommendation. Apple is a Stock Advisor recommendation. The Fool's disclosure policy camped out to get a Droid, but got lonely after a while and just went home.

Comments from our Foolish Readers

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  • Report this Comment On November 30, 2009, at 7:29 PM, InfoThatHelp wrote:

    Motorola stock would florish when it develops superior mobile CPUs specific for Motorola handsets offering integrated with the OS, Database, communications and applications all pre-built on the handset. Motorola's strength has always been with CPUs, and one of the major weaknesses of handsets is the lack of a superior CPU. The inclusion of OS, Database, and applications on the handset will make the Motorola handset a unique handset with a lot of allure to customers who are looking for a superior handset solution, instead of a general purpose handset, or a email/message only handset which is basically obsolete already.

  • Report this Comment On December 01, 2009, at 5:22 AM, ethertrader wrote:

    Buy Motorolla Stock! Best Event In Over 10 Years!!

    I believe Motley Fools are missing the picture here and will be hurt by the upside of Motorolla's success!

    Big buy!!! Motorolla has pulled back over 10% during the last week and a half.

    I have not owned a single share of MOT for over a decade. I see the news of Google & Verizon teaming up with MOT to be the best news in over 10 years. I knew this was a huge short 10 years ago and I know it is a huge long today.

    I have talked mostly about the upside. I guess in order to make this a well rounded comment I will include the things that I do not like about MOT.

    1. SIGMA Fund is a 4 billion dollar hedge fund that makes investments in a wide variety of assets and could have up to 50 million in very poor quality assets that will be recognized as valuations and the secondary market for these assets improve.

    2. The company started to use balance sheet leverage back in 2005 and bought stock for 4 years ending in June 2009. MOT paid 7.9 billion to buy back stock and they have lost nearly 4 billion dollars buying back their own stock. Not very good investors and they could have used that money for many other things. This will make earnings look better on a per share comp basis but I think if they had a little more common sense they would have waited and put themselves in a much stronger position. Or they could have used this pull back as a way to buy an asset that would help them grow earning and solidify their push into the smartphone space.

    When considering to make an investment in this company I take into consideration these 2 negative items and say that I am aware of these problems and I walk with my eyes open into MOT. The best news in over a decade for MOT.

    I want to buy as many options that are out of the money within 25% strike as I can afford to buy. The only risk to my advice here is the complex macro-economic picture that surrounds the world economy.

    MOT has already begun to turn around and I am sure this equity will move much higher. It is a buy!!!!

    Beware of a near term pull back. Many long-term investors may see this as an opportunity to unload MOT stock at a decent price based because MOT went down to $3/share this year. Other than that the company has enetered a new phase of growth and will be able to grow earnings.

    Buy and tell your friends to buy it if they want to make money. With regards to the options it is smart to ladder in with a plan.

    Another positive development has to do with the fact Motorolla is on pace to sell 2,000,000 Droid phones before the end of the fourth quarter 2009 (December 2009.) Analyst expect 1,000,000 units to be sold and have made very large miscalculations base on the intel we have discovered through our proprietary channel checking. We use a combination of paid surveys to store managers and various methods using phone activation through program penetration like GPS.

    I have done my channel check and got a very good representation of the numbers and I have found that this is one of 2 phone companies ready to explode to the upside. My recommendation is to buy and get in big. Do not use any stops. Use what I call a scale in technique.

    Buy stock slowly on a pull back and add to the position when it starts going up. When you get a huge move up (25%.) Sell the position for a gain. Hopefully it keeps pulling back. I do not think this will happen but if it does all the better.

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