Tuesday, May 19, 2009
(Cont'd from above)...

Jim (cont'd):   


Jim:    Only when we're speculating... we don't get any credit for having a straight in our portfolio... so, tonight, I want to try to show how to figure out which of these speculative stocks you should keep... and which you should toss back to the dealer...

In the words of the immortal stock picker, Kenny Rogers... "you've got to know when to hold them, know when to fold them... know when to walk away, and know when to run..."

Yep, you have to know when to fold them... and know when to keep Sprint, Motorola, or AMD...

Because it takes rigor to be a good speculator, I'm going to rank each of these three stocks using a 10 point scale... based on three different criteria...

Industry positioning, the strength of the business, and their comparative stock performance. That will make our decision about which card to throw back... or cards...

Now, even though AMD is a chipmaker, Motorola is a device maker, and Sprint is a service provider... they do have really one thing in common... they are far from the best company in their respective industries... Some would call them "worst of breed"... but I like to think of them as "less bad" than they have been in the past... But we can figure out which one is closest to the best for, from a glass half empty perspective, which one is most noxious...

So where do they stand in their respective industries?...

Motorola (MOT)... it's in a worse position of the three... it has to compete with Research in Motion and Apple... two of the Four Horsemen Of Tech... that consistently trample Motorola underfoot... and that's just the North American cell phone makers... GE has got some traction here and Nokia has got some hot new models out there... and that is still entrenched competition. And now, Motorola's market share has shrunk to its lowest level in the last decade... it's got a mere 6% of the handset market... not very much.

Sprint (S) on the other hand is in much better shape... although it's being squeezed by Verizon and AT&T... while T-Mobile pecks away at its position... But At least Sprint is doing well in one area... the prepaid market... where its Boost Mobile business launched an unlimited prepaid plan... is seeing strong subscriber additions. Now it looks like Sprint's subscriber base could actually increase for the first time in two years. That's very exciting, and that's thanks to the prepaid subscribers. Not enough... Sprint also has a hot product... it has an exclusive product called the Palm Pre... Jim Goldman talked about it a lot today... it's a potential iPhone killer... more at least a worthy iPhone competitor that should launch in early June. I say, holy cow, the Pre... another Motorola killer. It's an army against this poor company.

Now how about AMD (AMD)?...

It's in two duopoly businesses... computer processors, where it competes with Intel... and graphic processors, where it's up against NVIDIA... And AMD is taking names and taking share... consistently from Intel, and in a back-and-forth tug-of-war with NVIDIA that's just about to start going AMD's way...

Given that Intel has already gotten hit with a $1.45 billion fine for suspected anti-competitive practices by the European Union, as well as being a likely target for the new antitrust regime here in America... where, amazingly, the antitrust division is back at the Justice Department, after spending eight years least to the Commerce Department under Bush.

I think AMD could be poised to benefit from antitrust action... so I'm giving four points for its industry positioning/government favoritism...

Sprint is going to get two points...

And lowly-worm Motorola... I'm just giving it one...

How about the quality of each business?...

All three companies have lately come into... have been through some serious, serious turmoil... that brought their survival... their basic survival... into question.

On this front, AMD looks solid. I think you can have a better second half... I think it can have improved demand for its chips... AMD is also releasing several big new product lines including great graphics chips from a company that it's bought, call ATI. Most importantly, AMD finish selling 55% of its difficult semiconductor manufacturing business. That's the foundry company... to Abu Daubi's sovereign wealth fund. That was in March. It offloaded $1.2 billion in debt, on the newly-created company, improving its balance sheet. It got out of a low margin manufacturing business... that was a brilliant move... and it was originally why we recommended the stock at two dollars and change on Mad Money...

Now AMD expects its core business to turn a profit by the end of the year... Again, I would say Sprint comes in second... a company that's aggressively cutting costs... it should start seeing savings from the layoffs it made in the first quarter... Sprint is expected to generate $3 billion in free cash flow in both 2009 and 2010... it's paying off all its debt that matures this year, and it's got enough money to pay off its debt for 2010 and 2011...

Given the improved fundamentals, I think, at these levels, Sprint could actually be a very likely takeover target. The business is just too big... and now it's getting better... I think it's too cheap not to attract some interest in possible suitors. It could be a keeper. You could speculate on this one based on the takeover potential alone.

Oh, here we go again with Motorola...

Struggling... struggling more than the other two... its mobile device businesses losing money... operating margin is negative and, while it's been doing a good job of cutting costs, something that led to a three cent earnings beat, I think it's too soon to make a call either way...

So what are we going to do here?...

Now we give AMD three points... we're going to give Sprint three... and just one again to Motorola...

How is all of this reflected in their stocks?...

Year-to-date, Motorola has increased by 41%... AMD, up 103%... Sprint, rocketing up 200%...

Motorola deserves to have moved the least of the three. I'm giving it just two points here. It could go higher, even if only marginally... because it can improve just on the strength of mutual fund money flowing into tech.

Sprint gets only a point here, because it has moved so much... I can't help but feel that the easier money has already been made.

And, while AMD has already had a major move, it's fundamentals have improved enormously. I'm going to keep them with a two, okay?... so we'll give that a two...

How does our speculative straight look, only tally everything up?...

Motorola, hmmm... four points...

Sprint gets a six, because it's already had a big move...

And AMD comes in first, with nine points...

Here's the bottom line...

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