Amazon Smartphone Rumor Doesn’t Make This Stock a Buy

Amazon

Investors have been bidding up shares of Amazon (NASDAQ:AMZN) over the past couple of days. The stock soared 5 percent on Thursday, and it continued its ascent on Friday morning. The reason: The company is expected to announce a new device, which is most likely a smartphone. The smartphone is rumored to create its own market niche in that it will be designed to respond to the user’s head motions for some of its functions.

While this might wind up being a great product, there are a few things to be concerned about, and I think the stock should be avoided.

First, why is Amazon designing a phone? Amazon is really good at being an online retailer. You can buy nearly every product you want through Amazon and get it inexpensively and in a timely manner. How does a phone integrate with an online retailer? Until this becomes apparent one has to conclude that it makes little sense that Amazon would compete with companies such as Apple (NASDAQ:AAPL) and Samsung.

Second, you’ve probably heard the saying “buy the rumor and sell the new,” meaning that a stock or an asset will rise as investors anticipate a positive event, but then it will fall when that event comes to fruition unless it surpasses everybody’s expectations. In short this means that investors should get ready to sell Amazon shares before the announcement date of June 18.

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