Garmin Ltd. (GRMN) — This maker of navigation and communications and information devices for marine, aviation, automotive, wireless and OEM markets is a household name in GPS navigation equipment.
However, S&P Capital IQ points out that the auto/mobile segment is in a secular decline. Demand for personal navigation devices is slowing as companies like Google Inc (GOOGL) offer free mobile navigation on smartphones and other devices. The long-term prospects in this area are grim, and a weaker-than-expected global economy could exacerbate the problem.
While Capital IQ estimates the company’s sales will increase 8.2% in 2014, declining volume and pricing pressures could result in flat earnings. Its analysts anticipate EPS of $3.12 in 2014, down a penny from last year, and $3.23 in 2015.
Garmin is struggling in a competitive market, but my recommendation to sell shares is based primarily on technical considerations.
GRMN stock topped above $62 in early July, following a breakout in mid-February at $47.31. The top was followed by a series of lower highs and lower lows, forming a five-month bear channel punctuated by a death cross — 50-day moving average drops through 200-day — in October.
The stock bounced with the market for the remainder of October, but has now reached the upper resistance of the bear channel, an ideal place to sell shares short.
Sell GRMN stock short at $55 or higher with a downside target at the February breakout line at $47.50, 15% below current prices. Place a stop-loss order at $60 to protect against potentially unlimited losses.
Short selling is a speculative technique and not suited for all investors. Check with your broker for special margin requirements and their ability to borrow the stock.
