Cell phone companies have been in the news quite a bit lately. The industry is bustling with technology and innovation. This can be confusing to investors as evidenced by the sometime frantic and schizophrenic market.
An audio podcast of this article is available at: poweropt.com/podcasts/2007_05_24_Cell_Phones.mp3
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Examples of this include Vodaphone (VOD) experiencing a 15% price increase in the last two months while Motorola (MOT) has steadily declined 10% since the beginning of the year. Not to be left out Nokia (NOK) has gained around 35% since the beginning of the year. Sony (SNE), although it operates in a much larger space than just cell phones, has seen around 16% in gains since March 5th.
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The question on many investors’ minds is “what’s next?” Today, the PowerOptions_ Weblog takes a look at what some of the experts are saying and some of the high profile news in the cell phone sector. We recently wrote about the wireless sector in our article, “TPG Capital & Goldman Sachs Bid to Acquire Alltel – Covered Calls in the Telecom and Wireless sectors”, and it may be interesting to review some of the trades we wrote about.
A recent post on the Motley Fool website stated, “If the first six years of this century are any indication, 21st-century innovation will prove to be even more prolific than the 20th. Consider the social and cultural changes brought about by camera phones manufactured by Nokia, Motorola and Sony. Suddenly, everyone with a cell phone can be a freelance paparazzo or news reporter. Indeed, there are quite a few of them out there these days — camera phone sales topped the 300 million mark in 2005.”
In other news, the Vodafone Group recently announced two ultra-low-cost handsets it would be releasing in emerging markets, such as India and Africa. This fits nicely into Jim Cramers’ Rest of World (ROW) strategy we talked about yesterday in the blog entitled, “Jim Cramer’s Advice: Invest in Rest of World”
Vodafone is building on its recent $10.9 billion acquisition of India’s fourth-largest operator Hutchison Essar. The company, based out of the UK, has been pushing into high-growth emerging markets with a “no frills” Vodafone-branded phone. The phone will sell for less than $45.
Vodafone’s global director of terminals said, “The cost of handsets is probably the most significant, single barrier for people wanting mobile usage in many parts of the world. Every 10-pence reduction in cost means that thousands of people can afford a phone.”
With regards to Motorola, the one company on our list currently experiencing a stock price decline, Jim Cramer excitedly interrupted the interviewer in a recent online interview, “Can I just mention Motorola for a second? Two of my best guys in the last 24-hours have told me Motorola is a buy and it’s off of something that Nokia said last week. Nokia said that the glut has been worked off. Now the glut was a Motorola glut. So, what people are thinking is that Motorola may have smooth sailing for the next three quarters. Motorola may be one down five up.” In addition, Cramer reported Eddie Lampert, a famed portfolio manager, just disclosed a 900K position in Motorola.
This PowerOptions blog entry is an example of how the average investor can identify the most attractive option trade based on their view of whether a stock will rise or fall. Whatever your personal opinion about the movement of an individual stock, PowerOptions can help you identify the most attractive trade. For example, If an your view is bullish, you might choose to use a covered call investment strategy, bull call debit spreads or bull-put credit spreads to make money off your hunch. Conversely, if you believe a stock will fall, you might choose bear put debit spreads or bear-call credit spreads.
|PowerOptions covered call Communications Equipment (59 days)|
|NOK||$ 26.39||NAYGX||07 JUL $25.00||$1.90||7.20%||2.10%||2.10%|
|MOT||$ 18.68||MOTGT||07 JUL $19.00||$0.75||4.00%||4.20%||6.00%|
|VOD||$ 29.76||VODGF||07 JUL $30.00||$0.80||2.70%||2.80%||3.60%|
|SNE||$ 58.06||SNEGL||07 JUL $60.00||$1.80||3.10%||3.20%||6.60%|
NOK – The Nokia trade involves the July $25 call option and offers 7.2% downside protection and 2.1% potential profit if the stock is above the $25.00 strike price at the end of the option period.
Competitors for NOK include: LM Ericsson Telephone Co. (ERIC), Motorola Inc. (MOT), Samsung Electronics Co., Ltd. (private), Openwave Systems Inc. (OPWV), palmOne Inc. (PALM), QualComm Inc. (QCOM), Research In Motion Ltd. (RIMM), and Qiao Xing Universal Telephone Inc. (XING).
MOT – The Motorola trade involves the July $19.00 call option and offers 4.0% downside protection and 6.0% potential profit if the stock is above the $19.00 strike price at the end of the option period.
Competitors for MOT include: LM Ericsson Telephone Co. (ERIC), Nokia Corp. (NOK), Sony Ericsson Mobile Communications AB (private), Airspan Networks Inc. (AIRN), ALCATEL LUCENT (ALU), Alvarion Ltd. (ALVR), Arris Group Inc. (ARRS), California Amplifier Inc. (CAMP), C-COR Electronics Inc. (CCBL), EFJ Inc. (EFJI), Harmonic Lightwaves Inc. (HLIT), Harris Corp. (HRS), ID Systems Inc. (IDSY), Medis Techs. Ltd. (MDTL), NovAtel Inc. (NGPS), Plantronics Inc (PLT), Radisys Corp. (RSYS), and RELM Wireless Corp. (RWC).
VOD – The Vodafone trade involves the July $30.00 call option and offers 2.7% downside protection and 3.6% potential profit if the stock is above the $30.00 strike price at the end of the option period.
Competitors for VOD include: O2 plc (private), Orange S.A. (private), T-Mobile International AG & Co. KG (private), NTT DoCoMo Inc. (DCM), Deutsche Telekom AG ADR (DT), and Millicom Intnl. Cellular S.A. (MICC).
SNE- The Sony trade involves the July $60.00 call option and offers 3.1% downside protection and 6.6% potential profit if the stock is above the $60.00 strike price at the end of the option period.
Competitors for SNE include: Matsushita Electric Industrial Co. Ltd. (MC), Koninklijke Philips Electronics NV (PHG), Activision Inc. (ATVI), Avid Technology Inc. (AVID), Dolby Laboratories Inc. (DLB), Eastman Kodak Co. (EK), Immersion Corp. (IMMR), In Focus Systems Inc. (INFS), Universal Display Corp. (PANL), Polycom Inc. (PLCM), Rimage Corp. (RIMG), Seachange Intern. (SEAC), Sonic Solutions (SNIC), and Audiovox Corp. (VOXX).
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