How to Catch a Falling Knife

NEW YORK ( TheStreet) -- Facebook ( FB), Research In Motion ( RIMM), and Exxon Mobil ( XOM) closed at lows of the year Monday. They represent three different industries, devalued for different reasons, and three very different likely outcomes; however, they all share one important characteristic: You can make you money with them if you time your investment correctly.

RIM closed in single digits Monday for the first time since December 2003. For a company that remains cash-flow positive (with a possible loss in the current operating quarter) and profits of $2.22 a share in fiscal 2012, it's clear the BlackBerry is being thrown out with the bathwater.

The upcoming June earnings report is expected to bring another massive writedown in inventory (recall that RIM wrote down $465 million worth of dust-collecting PlayBooks about six months ago), wiping out this quarter's earnings. It doesn't matter though if RIM makes a profit or not (Read my RIM's valuation calculation article).

The latest earnings warning once again knocked the legs out from under the stock, but the market is overreacting. As I described in my valuation article, the liquidation value is much higher than the stock price.

Investors want RIM to make money this quarter, however guidance is at least breakeven on a cash flow and net basis. RIM's CEO Thorsten Heins is hoping to buy time to either get the best price possible or for BlackBerry 10 (BB10) to turn things around. Don't count on RIM pulling a Nokia ( NOK) with BB10.

Microsoft and Nokia

Microsoft ( MSFT) and Nokia's homerun Lumia 900 may be the prettiest girl at the dance tonight; however, you may not see her at the next dance. Nokia's trouble keeping up with demand and a limited number of carriers demonstrates Nokia's lack of capacity to grab market share. Perhaps Microsoft and RIM should have partnered up? With the time and effort RIM has invested in BB10, maybe they could have simply skipped the software development and went with Microsoft Windows for free.

Based on the chart and technical analysis, RIM is well into oversold territory. Option premium is rich, and I maintain that selling the June or July $10 strike put options offers a favorable risk-to-reward ratio, especially compared to buying RIM stock outright. Nokia is priced like an option that doesn't expire, but it doesn't mean Nokia can't fall in value.

Speaking of falling knives, Microsoft broke through the 200-day moving average Monday and managed to close above. While bearish technically, Microsoft walks onto the field with a single-digit price-to-earnings ratio and Windows 8 just around the corner. Microsoft may become a value buy soon.

The smart money is not betting against Microsoft, the short interest is only 1.2%. I will look to enter a position near $27.50 using options to hedge and mitigate my risk exposure.

Exxon Mobil

Oil prices continue to fall and remain oversold on the daily chart. The US Oil Fund ETF ( USO) touched and bounced off the monthly support level. On Friday, USO gave a TDCombo 13 oversold signal based on DeMark indicators. I was not surprised to see the dead cat bounce Monday after such a large selloff. USO doesn't run into resistance until meeting the nine-day moving average, currently at $33 a share.

One of the casualties of falling oil prices is Exxon Mobil. Exxon Monday gave a TDCombo 13 oversold signal based on DeMark indicators. But while technical analysis on the daily appears oversold, the weekly chart does not. Expect an increase in volatility as world events shape supply interruption risk.

With Saudi Arabia's budget requiring $90-plus oil, don't expect oil to continue falling unabated. It might be Iran, North Korea, or another; however, count on "someone" stirring the pot moving oil temporarily higher. (Read why I believe oil prices are headed toward $75.)

Longer term, Exxon may become a dividend trap, but in the next few weeks expect Exxon to trade higher. For the bold and nimble; the June weekly $77.50 put options at 80 cents is attractive. A long-term Exxon investor may want to take a close examination of selling covered calls as a hedge against falling oil prices.

Facebook and Zynga

Facebook and Zynga ( ZNGA) both closed at all-time lows on Monday. TheStreet's Richard Saintvilus believes waiting for $25 is the right price to invest with Facebook. I like his thinking; however I would take it one step further.

Sadly for now, Facebook and Zynga are connected at the purse, and two new marginally profitable companies interdependent on each other is concerning. (Read my Facebook's Lessons in How Not to Play the Game article).

Smart money has lined up to short Zynga faster than at a $1 kissing booth hosted by Emmanuelle Chriqui. Over 35% of Zynga shares are shorted as of May 15, the latest reporting date. At some point, shorts are going to want to cover. As the price moves lower the potential reward falls while the level of risk increases.

Have Zynga's shares reached the tipping point yet for shorts to cover? Watch shares of Facebook to lead the way. With Facebook trading volume declining almost every day, the weak hands appear to have largely folded already. A Facebook closing above the IPO price is the point I become interested in Zynga.

Like every big news story, the Facebook mess will soon run its course and value buyers will step up to gain exposure. Even with the drop of $11 from the IPO price, Facebook is still priced relatively rich at $27. If Facebook breaks below $26 I will become interested in writing July $23 and $20 put options ( Don't miss my first Facebook article published May 18).
At the time of publication, the author held no positions in any stock mentioned.