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At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." While the pinstripe-and-wingtip crowd is entitled to its opinions, we've got some pretty sharp stock pickers down here on Main Street, too. (And we're not always impressed with how Wall Street does its job.)
Given that, perhaps we shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
When you hear people talking about smartphones these days, the discussion usually centers on whether to buy Android versus Apple. Or more recently, on whether it's worth trying to scoop up a deal on one of Hewlett-Packard's (NYSE: HPQ ) Palm products now that that firm's beating a retreat from the mobile wars. Rarely does anyone even mention Research In Motion (Nasdaq: RIMM ) anymore -- and that's telling.
Unsurprisingly, we've watched a slow-motion implosion at RIM over the past few months, as the company that basically created the smartphone market slipped quietly into irrelevance. Since hitting a recent high of $70 a share in March, RIM shares have fallen nearly 60% to their recent price of $29 and change. But according to one analyst that's going to change, and soon. The analyst is Sterne Agee. And the rating is buy.
Did you say "buy?" Or "bye-bye?"
Surprisingly, "buy." As traders prepared to head home for the weekend on Friday, Sterne Agee snuck in one last upgrade before the trading week was done. Arguing that RIM's fixed the mistakes made in its "OS 6" lineup of smartphones, and is prepared to issue a series of "worthy upgrades" to its BlackBerry line, Sterne believes that reports of RIM's demise have been greatly exaggerated.
In fact, according to Sterne, the "mixed to positive" reviews tech analysts are giving RIM's new products suggest the stock now has the kind of "near-term product catalysts" that could get the stock moving again. Meanwhile, a window is opening through which RIM can steal a march on its rivals, as U.S. phone carriers seek an alternative to Android and iOS, while the new alliance between Nokia (NYSE: NOK ) and Microsoft (Nasdaq: MSFT ) is said to be launching its first mobile devices in the European markets before bringing them to the U.S. This, believes Sterne, will give RIM a bit of breathing room in which to try and rebuild its reputation -- and its market share -- stateside. But is Sterne right?
Let's go to the tape
I have to say that, while I respect Sterne's opinions generally, its record in the computers and cellphone markets leaves much to be desired. According to our records on CAPS, this analyst is really only middling-good in smartphones and computers. Of the four stocks Sterne has recommended buying in these industries over the past couple years, only half have actually succeeded in beating the market:
Sterne's Picks Beating (Lagging) S&P by
So when Sterne Agee tells me to buy RIM because "this time it's all gonna be different," (I paraphrase, of course), I have to tell you folks -- I have my doubts. And those doubts just grow bigger the more I look at RIM's numbers.
RIM: Would you buy these numbers?
Oh, I know that at first glance, RIM shares look absolutely dirt cheap. The P/E on this stock has now sunk to a measly -- shameful, really -- 4.6. That's cheaper than just about any RIM rival you can name. It's even cheap relative to the anemic 6.1% long-term growth that analysts are now forecasting for RIM.
Problem is ... it's that very growth rate that troubles me. Consider: As recently as March 2011, analysts were predicting RIM would post 20% annual growth from now through 2016. Just two months later, growth estimates had been ratcheted back to 13%. Now they sit at 6%. Seems every time I turn around, Wall Street is cutting another 7 percentage points off RIM's growth rate. And it kind of makes me nervous to buy even at today's ultra-low prices. I mean, one more cut like this, and RIM's going to be in negative growth territory.
Growth in the wrong direction
And speaking of negative growth, have you noticed what's been going on with RIM's key customers lately? The company's answer to iPad is a tablet PC by the name of "PlayBook." And it was ballyhooed initially, but already the enthusiasm is wearing off. So far, of the major U.S. telecoms, only Verizon has agreed to carry the PlayBook -- and according to Reuters, already Verizon (NYSE: VZ ) is rethinking its decision. AT&T (NYSE: T ) won't comment on whether it will offer its subscribers the option of buying a Playbook, while Sprint Nextel (NYSE: S ) confirmed just last week that it definitely will not.
Seems to me, if RIM's got any momentum in the mobile wars, it's headed in the wrong direction. Even if RIM looks cheap today, it just might be because the stock's a value trap.