The Options Trader
105 W. Monument Street
Baltimore, MD 21201
Wednesday, May 05, 2004
Email – #169
** Really Turning It Around
About a week ago Motorola reported a 40% increase in sales and
profits that blew away all estimates. What is really impressive
is that this is already a massive company with over $25 billion
in sales. The amount of sales and marketing momentum required to
increase quarterly sales by $2 billion is absolutely amazing.
Motorola (MOT-NYSE) has been around forever. It was one of the
pioneers in mobile communications and semiconductors. The company
has been run by scions of the Galvin family for over five
decades. Now the company is under new management, Ed Zander,
formerly of Sun Micro, and the changes instituted by the last
Galvin to run the company are bearing very juicy fruit.
When MOT announced the numbers, the shares rocketed up more than
$4 in the ensuing trading days, only to be set back by the mini-
correction in tech. Make no mistake, MOT is a tech company, but
one that has excellent fundamentals.
Not only is the company growing in double digits, it sports a
forward p/e lower than that of the S&P, while showing more than
double the growth of the average S&P stock. In addition, the
company has piles of cash and low debt (it has been restructuring
its balance sheet for the past three years).
I do not expect MOT to return to the $60 levels of the Internet
heyday anytime soon, but I can easily see the shares of this
high-quality company approaching the $30 level in the next 12
months. Right now the shares are at $19.
MOT’s growth is a result of strong performance in all segments of
its business, especially the communications area. It has finally
gotten its act together to launch and sell new products ON TIME.
That was its biggest problem in the past: It promised big, but
failed to deliver.
The coming weeks and months are going to be volatile in Tech
Land. However, the higher-quality blue chips will hold out better
if we have another leg down, and companies like MOT will explode
upwards if the market senses that growth is still in the cards.
We will hold MOT (if we don’t get stopped out) until the next
earnings release in July. There should be a nice run-up as
investors eagerly await a repeat performance. As you are now well
aware, we do not need the shares to move much for us to profit.
Just a 10% move in MOT will result in 30% to 40% gains for us.
Buy the Motorola January 2006 $20 call options (WMA AD). They are
trading at $3.70 and are VERY liquid. DO NOT PAY MORE THAN $3.70
and set an initial MENTAL stop at $1.85.
Regards,
Karim Rahemtulla
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