AMD and Motorola (MOT): What now?
Motorola and AMD have been taking a beating as both companies warned of
earning shortfall. MOT and AMD are down more than 10 percent following the news. Interestingly, the support level of these two stocks appears to be $18. Depending on your personal investment horizon (long-term or short-term), one can either take the lost and move or buy more at a discount. Let’s take a closer look at these two companies.
AMD reminds us of the Netscape vs. Microsoft fight back in late 1990s. As you might recall, both companies were fighting for the browser’s supremacy. Despite valiant efforts, Netscape would eventually fall; going up against a giant like MSFT proved too much. In the end, MSFT’s money and resources outlasted Netscape. Similar to AMD vs. Intel (INTC), we believed Intel will eventually win out. Last year was a great year for AMD as sales were strong, but once Intel decided to lower their prices, AMD started to tumble. Price was the one advantage AMD previously had over Intel. Personally, I know when I buy a new computer, the only reason I would consider buying an AMD system is because it was a few hundred dollars less than a comparable Intel machine. Even with the lower prices, consumers have hard time choosing between AMD and Intel because the Intel name is so strong. Now that price is no longer an advantage for AMD, Intel will have the advantage. Despite the fact that AMD chips have proven to be faster and more efficient, consumer will always choose the stronger brand, especially when price is not a factor. Unfortunately, for AMD’s stock, we see very little gain in the near term. In fact, it could drop further as the company attempts to fully integrate with Symbol. Despite the lucrative deals with Dell last year, we believed AMD is in for more hard times ahead. If you’re an AMD investor, we strongly recommend selling some positions whenever possible and perhaps putting it in Intel (INTC).
The Motorola (MOT) case is different. As Wall St. analysts are all downgrading the stock, we view the situation as an opportunity to buy at a discount. Motorola’s revenue is not solely dependent on handsets alone so despite the disappointing news, we believed MOT will eventually get things back on track. The primary reason we like MOT at this level is the stock represents little risk as the negatives have already been priced into the stock. In the words of John D. Rockefeller, “The way to make money is to buy when blood is running in the streets”. We believed blood is now running in the streets of Motorola and it’s time to buy MOT. At $18, we believed this stock is undervalued.
