Motorola is in the running for the best tech stock for 2007. Click here to see the other entries.

A couple of weeks ago, I used this space to argue why satellite radio operator Sirius was destined to become the "Worst Stock for 2007." Among the reasons I chose Sirius for this "honor" were these:

  • Its massive dilution of outside investors over the last three years;
  • its long history of burning cash and putting itself in debt;
  • and its destruction of a relatively benign book value, which has reduced the stock to negative book value.

So it seems only logical that today, charged as I am with arguing that another company is the "Best Tech Stock for 2007," I'd take a look at similar traits in that firm: tech stalwart Motorola (NYSE:MOT). Here's how it stacks up:

  • Scant dilution: Over the last three years, Motorola's share count has increased at barely 1% per annum.
  • Although it has not yet reported its cash flow for Q4, Motorola generated a total of $10.1 billion in free cash flow in 2004, 2005, and the first three quarters of 2006 -- meaning its cash profits exceeded the "accounting profits" it reported under GAAP by an even $1 billion.
  • And its tangible book value grew from $4.83 to $7.08 per share -- compounding at nearly 15% per annum.

Pretty impressive, huh? But wait; it gets better.

When examining a company as a potential investment, you want to look at three main things:

1. Its long-term past performance (while no "guarantee of future results," it's a reliable measure of a firm's quality).
2. The likelihood of future performance measuring up to the firm's past.
3. The price. Buy superb companies at insane prices, and you're pretty much guaranteed to lose money over time. Yes, I'm talking about you, Google.

Two down, one to go
We already know that Motorola has performed admirably in the past. Its No. 1 market share in the U.S. cell-phone market, and its determination to capture even more market share worldwide, suggest it will do well in the future. So the only question that remains, really, is the price. Is Motorola cheap enough?

Enterprise value

Free cash flow

Five-year predicted growth rate



$33.2 billion

$4.2 billion



Nokia (NYSE:NOK)

$76.2 billion

$4.1 billion



Ericsson (NASDAQ:ERIC)

$57.5 billion

$2.6 billion




$63 billion

($1 billion)



Free cash flow numbers courtesy of Capital IQ, and based on most up-to-date data available on trailing-12-month results.

Now, it's tricky to compare companies that don't make exactly the same products. Still, this table indicates that relative to its cell-phone-hawking peers, Motorola is easily the cheapest of the bunch when looking at the relationship between price, cash earnings, and estimated growth rates.

Nearly three years ago, in a pair of columns titled "Panning for Gold" and "7 Steps to Finding Gems," I laid out my own system for finding superior stocks in the sphere of computer hardware, in software, in retail, you name it. Over the years since then, I've become convinced that a company selling for an EV/FCF/G ratio (meaning the business value, divided by cash profits, divided by the projected rate of growth of those profits) as low as Motorola's will reward its investors more often than not.

When you combine Motorola's current bargain-basement price with its rising market share, not to mention the immense success of its RAZR phone and follow-on offerings, I think you've found yourself the Best Tech Stock for 2007.

But in the end, you will help determine which company earns that coveted title. Just head over to Motley Fool CAPS and, if you agree with my assessment, rate Motorola an "outperform." If you disagree, that's OK ... just rate it "underperform." We'll announce the results of the contest early next week.

See our other entries in the Best Tech Stock for 2007 contest, and don't forget to share your opinion at Motley Fool CAPS.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked 26 out of more than 21,000 raters. The Fool's disclosure policy always turns its phone off in the theater.