While those names could sound tempting for investors who may think they are cheap, BusinessWeek's Karyn McCormack reminds us that not everything that is cheap is a good bargain, and there are some risks that need to be taken into account.
One common problem for most of these stocks is that they trade under $10 for a reason. That reason is usually hardly any earnings growth, if any at all. And with a weak economy, these companies would have an even harder time to stimulate growth. Add to the mix the fact that institutional investors don't like to touch stocks under $10 and the potential for recovery is not good.
Driving on the LA freeways yesterday, there was a message on the periodic amber signs. That is, drivers will need to use hands-free mobile devices if they want to talk on their cell phones.
And, yes, it's caused a stir (LA folks love their cars and cell phones -- hey, it's a lifestyle here). At the same time, I've almost got into a few accidents because of another driver's cell phone use (and, in some cases, texting).
But, will the new California law make any difference?
Well, according to a piece in the Daily Breeze, the answer may be: it depends.
For example, Larry Rosen, who is a psychology professor at the California State University, Dominguez Hills, believes that the law doesn't address the core problem. Basically, cell phone use -- whether hands-free or not -- is a distraction (known as "inattention blindness").
Of course, there are a variety of studies on the topic. Unfortunately, the conclusions are mixed. In other words, it's pretty tough to isolate cause-and-effect on a large scale.
There is one thing that's certain: the new law should result in a boost in hands-free device sales by such makers as Motorola (NYSE: MOT) and Nokia (NYSE: NOK).
So, to learn more about the new law, you can check out CA Hands-Free.
Handset maker Sony-Ericsson said it is having a tough time. According to The Wall Street Journal (subscription required), "the mobile-phone maker continues to be hit hard by a weakening economy in Western Europe, hurting demand for the mid- to high-end handsets it specializes in."
Of course, another big market for more expensive phones is America, Motorola's (NYSE: MOT) last stronghold. The U.S. company faces a double threat now. It does not have any "hot" model to compete with new products from Nokia (NYSE: NOK), Samsung, or Apple (NASDAQ: AAPL). Now it appears that the recession is cutting demand for phones altogether.
Motorola may already be at a place where its handset operation cannot recover. Revenue in the division is dropping rapidly, and the unit is losing money. Its share of the global market has dropped from 22% two years ago to about 12%. And, the company's stock is down to a 52-week low of $7.20, about 65% down from its 52-week high.
No matter how hard it may be for other companies in the industry, the only firms that may do well over the next year are Nokia and specialized handset makers like Apple. Nokia has about 40% of the global market and sells modestly priced phones in rapidly growing markets including China and India. Apple gets the high end of the market.
In the middle is Motorola, with barely a hope of things getting better.
Douglas A. McIntyre is an editor at 247wallst.com.
This post is part of my series featuring established companies and the smaller, more aggressive or innovative rivals that may eventually succeed them.
Apple (NASDAQ: AAPL) is one of the great stories of corporate America and the stock market. Under the leadership and genius of Steven Jobs, Apple is emerging as the premier technology growth company of this decade and the next. In the past five years the stock has rocketed from $9 to the current $175, and yet the story is actually stronger than ever before.
Apple has three major legs of growth in its arsenal and a distribution system that is second to none. The products of Apple are both cool and revolutionary. The 2002 introduction of the iPod defined the MP3 player space. Apple has sold over 150 million units as of March 2008 and commands over 70% of the market share. Many iPod owners are on their 3rd and 4th units, so the actual penetration of addressable customers has been barely scratched. The newer versions include touch screen and of course can store up to 20,000 songs and numerous movies and pictures.
The Mac computer has been re-engineered these past couple of years and is now the rage of the personal computer market. The new Mac is beginning to enter the traditional enterprise sector while maintaining its dominance in the consumer sector. The Leopard operating system became available in mid-2007 to rave reviews. Apple is taking market share in the competitive personal computer sector while maintaining its pricing structure. The company doesn't compete on price but offers such superior functionality that buyers do not mind paying full retail price. The attendant software programs are also seeing a resurgence and also carry high margins.
Credit Suisse downgraded Nokia (NYSE:NOK) from "outperform" to "neutra", according toBriefing.com. The news service also reports that Bernstein upgraded Bristol-Myers (NYSE:BMY).
McAfee (NYSE:MFE) was started as "outperform" at R.W.Baird, according to Briefing.com. The financial website also reports that Motorola (NYSE:MOT) was started as "underperform" at Credit Suisse.
Of course, Microsoft (NASDAQ: MSFT) demonstrated the huge value of owning a pervasive operating system.
But what about the OS for mobile? Microsoft has been building its own alternative. Moreover, Google (NASDAQ: GOOG) has Android.
However, the winner may actually be the handset maker, Nokia (NYSE: NOK). This week, the company announced it is purchasing Symbian, which has about 60% of the global market for the mobile OS. The offer comes to about $409.8 million (to grab the 52% that Nokia doesn't already own).
But, unlike Microsoft, Nokia isn't taking a proprietary approach. Instead, Symbian is going to be open source.
True, this is likely to take some time (say several years), but in the meantime, Nokia can leverage its massive global platform by using Symbian's 1,200 programmers. The upshot should be improved innovation and faster product launches (oh, and there will be no need to pay licensing fees to Symbian).
OK, so what about rival handset makers that rely on Symbian, such as Motorola (NYSE: MOT), Sony Ericsson Mobile and Samsung? Might they be worried?
TheStreet.com's Jim Cramer says the slide has to end somewhere -- eventually, we'll see a bid.
Is someone having a margin call? That's what I keep thinking as I watch the sickening slide in Motorola's (NYSE: MOT) (Cramer's Take) stock. How can Motorola go down so much? This is a company with a lot of money and some businesses that are doing excellently. It has great existing contracts with telcos.
But someone sells it and sells it hard every day. It almost feels that Carl Icahn has a margin call, post-Yahoo! (NASDAQ: YHOO) (Cramer's Take), or he has to sell MOT to fund Yahoo!, and that doesn't seem right.
Otherwise, how can we explain the endless selling? Sure, as Piper said yesterday, they are losing share in America, but does anyone think this company is going away? Does anyone think this company is some sort of regional bank with its destiny completely out of its hands, that reliance on housing coming back will determine its viability? This is only a $16 billion company now with sales that are almost twice that?
MOST NOTEWORTHY: Motorola, MF Global and Acorda Therapeutics were today's noteworthy downgrades:
Piper Jaffray downgraded shares of Motorola (NYSE: MOT) to Sell from Neutral after their June channel checks indicated continued market share losses in the company's North American handset business.
Keefe Bruyette downgraded shares of MF Global (NYSE: MF) to Market Perform from Outperform on the anticipated dilutive effect of the company's convertible offerings.
Friedman Billings downgraded Acorda Therapeutics (NASDAQ: ACOR) to Market Perform from Outperform citing valuation.
OTHER DOWNGRADES:
Xyratex (NASDAQ: XRTX) was downgraded to Neutral from Outperform at Baird and to Market Perform from Outperform at Wachovia.
Goldman downgraded the U.S. Financial Sector and Consumer Discretionary Sector to Underweight from Neutral. Goldman removed Nucor (NYSE: NUE) from the Conviction Buy List.
Merrill downgraded AU Optronics (NYSE: AUO) to Neutral from Buy.
BCE Inc. (NYSE: BCE) shares are jumping over 10% in premarket trading after Canada's Supreme Court overturned a Quebec Court decision, clearing the way for the $52 billion leveraged buyout by Ontario Teachers' Pension Plan and U.S. private equity firms. The buyers might still negotiate the price down though.
Halliburton (NYSE: HAL) withdrew a $3.6 billion offer for Britain's Expro International after the U.K. oil services firm stuck by a smaller bid from a private-equity consortium.
Some analyst calls this morning:
J.C. Penney Co. (NYSE: JCP) was upgraded by Deutsche Bank to Buy from Hold and the price target upped to $46 from $45.
Motorola Inc. (NYSE: MOT) was downgraded by Piper Jaffray to Sell from Neutral on continued weakness in North American market. The target price was cut to $7 from $9.75. Shares are down over 2% in premarket trading.
First Solar (NYSE: FSLR) price target was upped at Lehman Brothers from $280 to $335. Shares are up over 2.5% in premarket trading.
Deutsche Bank upgraded department store J.C. Penney (NYSE:JCP) to "buy" from "hold" according toMarketWatch.
Piper Jaffray downgraded Motorola (NYSE:MOT) to "sell" from "neutral", according toBriefing.com. The news service also reports that Lehman raised its price target on First Solar (NASDAQ:FSLR) to $335 from $280.
IBM (NYSE: IBM) was raised to "outperform" at BMO Capital Markets, according to24/7 Wall St.
Douglas A. McIntyre is an editor at 247wallst.com.
The week was full of news about handsets. Sprint (NYSE: S) said it would launch an "iPhone killer," a $129 phone from Samsung. Many brokerage firms upped estimates for Apple (NYSE: AAPL) iPhone sales as it appears that the demand for the new 3G version will be tremendous. Nokia (NYSE: NOK) launched its E71 and E66 high-end handsets. Lehman upped its targets for earnings estimates at RIM (NASDAQ: RIMM), the maker of the BlackBerry.
And Motorola (NYSE: MOT) shares hit a five-year low at $7.61. The company did not launch any new products. No one on Wall Street upped forecasts on the company. All that was clear is that the firm is taking a worse beating as each month passes.
Motorola plans to spin-off its handset business and keep its home networking and enterprise operations. The entire company has a market cap of under $18 billion now.
Based on Motorola's last 10-Q, the two units the company is keeping have an annual revenue run-rate of over $16 billion. They should make about $1.7 billion in operating profit in 2008. By many measures, together they would be worth $18 billion on their own.
It is a spectacular sign of how bad things are at Motorola's handset business, that, as an enterprise, it may have no financial value at all. Its market share is dropping too fast and its is losing too much money.
MOT may not even be able to give the operation away for nothing.
Douglas A. McIntyre is an editor at 247wallst.com.
Motorola Inc. (NYSE: MOT) just can't seem to find a sliver of good news to hang on to these days. The cellphone manufacturer based outside of Chicago saw its shares hit a five-year low this week as the outlook for its cellphone division continues to worsen. The company is in the midst of preparing to spin off the division to rid itself of that baggage. It's a sad state when that "baggage" is what defines Motorola.
Motorola contract manufacturer FoxConn had some cautious words to say this week as well, which probably helped propel Motorola's shares downward to $7.61, a level not seen since May 2003. After losing $194 million in the first quarter alone, it's just bewildering to see how such a great company completely lost its way, financially speaking.
It's not getting any better. The company's product launches have been described as a "half-baked mess" and it can't seem to find a knack for the cellphone handset design that it made so famous years ago with the RAZR. Motorola certainly isn't a one-hit wonder, but in the brutal cellphone market you need a hit every year to stay at the top of your game. Korean giant Samsung Electronics passed Motorola by in 2007 to become the world's second-largest cellphone manufacturer by having a whole host of cellphone designs available to almost every wireless carrier in the world. That's just for starters, but for Motorola, it seems to be an impossible goal at the moment.
Dragged down by the challenging market conditions, many stocks have fallen under $10 lately. CNBC's Cindy Perman suggests that some of these stocks could be become good investments for traders. However, not everything that is cheap could be such a good bargain, Perman reminds us. You must always do your homework on potential investment before buying.
For example, Ford Motor (NYSE: F) fell down to around $6 compared with $38 nine years ago -- is it a good investment? Well, while the automaker revealed its plans to shift production from trucks to cars and give a boost to its turnaround plan, it also warned it won't be profitable until 2010 at the earliest.
Perman quotes several investment specialists on the matter. John Schloegel, vice president of investment strategies at Capital Cities Asset Management says, "An investment in Ford today feels like being in the wrong place at the wrong time." And Greg Womack, president of Womack Investment Advisers, advices to stay away from the sector, which doesn't look promising now, for the next three to five years to find out the "winner."
It would appear that Carl Icahn's attempt to take over Yahoo! (NASDAQ: YHOO) has a few less fans. Short sellers increased their interest in the company by 19.4 million shares to 66.6 million between May 15 and May 30.
The gamble is almost certainly based on the emerging sentiment that Icahn has made an awful decision. He will either lose his proxy fight to take control of the company, or win it and find that Microsoft (NASDAQ: MSFT) no longer wants to buy the company. Traders in general seem to like that theory. Yahoo! shares have moved from just shy of $27 five days ago to as low as $26.26 yesterday.
Icahn's biggest weakness may be that he has to be right. It has cost him a bundle in Motorola (NYSE: MOT) and Blockbuster (NYSE: BBI). Now, there is no indication that Microsoft will pay any premium at all for Yahoo!. Redmond may have no interest in any deal any more.
Some group of traders is guessing Yahoo! will trade much lower.
The weak market conditions have caused many stock prices to fall under $10. Not only smaller -- and perhaps lesser known -- stocks trade under $10 these days, but also some big and famous names such as Ford Motor Co. (NYSE: F), Motorola Inc. (NYSE: MOT), Sprint Nextel Corp. (NYSE: S), Washington Mutual Inc. (NYSE: WM) and Del Monte Foods (NYSE: DLM), as well as many airline companies like Northwest Airlines (NYSE: NWA) and JetBlue (NASDAQ: JBLU). 
Driving on the LA freeways yesterday, there was a message on the periodic amber signs. That is, drivers will need to use hands-free mobile devices if they want to talk on their cell phones.
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The week was full of news about handsets. 
Dragged down by the challenging market conditions, 
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