Research In Motion at $10: Dog or Just an Underdog?

Short-sellers and hedge funds may be shadowy, but sometimes they are the smartest guys in the room. They've done their homework, and they're willing to bet their capital against the crowd -- an investing strategy that can be as lucrative as it is contrarian.

On Motley Fool CAPS, the 180,000-member investor community where informed opinion is translated into stock ratings of one to five stars, we've also got investors who find the weaknesses in a company's armor and correctly call its fall. We call them "Underdogs" if they've earned 100 or more CAPS points by correctly predicting that one or more stocks would underperform the market.

Today I'm looking at BlackBerry smartphone maker Research In Motion (NASDAQ: BBRY  ) , which is down 47% from the highs it hit earlier this year, but is 60% above its lows and carries a one-star CAPS rating. As its much-anticipated BlackBerry 10 operating system readies for launch early next year, the onetime smartphone leader has a lot riding on its success.

It's been an up-and-down ride, so if there are investors who've scored big by correctly predicting which stocks will fail, it may be worth our while to check out those they think will succeed. CAPS All-Star warrenout is one who's earned the underdog moniker but predicts RIM will ring higher.

Research In Motion snapshot

Market Cap

$5.0 billion

Revenues (TTM)

$15.1 million

1-Year Stock Return

(50.1%)

Return on Investment

(6.2%)

Estimated 5-Year EPS Growth

5%

Dividend and Yield

N/A

Recent Price

$9.71

CAPS Rating

*

Source: FinViz.com. N/A = not applicable; Research in Motion doesn't pay a dividend.

Of course, not every short sale goes as planned, which makes shorting a risky proposition. Stock prices can be irrational longer than you have money to stay in the game. And you don't want to end up with fleas by lying down with dogs.

A wedge issue
One Jefferies analyst says not only is Research In Motion not a dog, but it's a highly discounted underdog that could soar by 400% in just one year because Verizon (NYSE: VZ  ) , AT&T (NYSE: T  ) , and Sprint (NYSE: T  ) need the wedge the BB10 OS provides to keep Android and iOS from exerting too much control and pressure.

No doubt it will give carriers and consumers an option, but it ignores the rise of Microsoft's (NASDAQ: MSFT  ) Windows Mobile OS and its partnership with Nokia (NYSE: NOK  ) and says all three of them will essentially shut down while RIM executes flawlessly. Consumers also need to flock to RIM's new offering, yet we see just the opposite happening.

Abandoning ship
The National Transportation Safety Board just switched from the BlackBerry to iPhone, following the General Services Administration;  the Bureau of Alcohol, Tobacco, Firearms and Explosives; and the National Oceanic and Atmospheric Administration. That's in addition to large corporate clients like Halliburton (NYSE: HAL  ) and Yahoo! (NASDAQ: YHOO  ) that switched phones for their employees' use. Admittedly the entities were using older versions of the BlackBerry OS -- and in the case of the government, they're iterations that are three, four, and five upgrades ago -- but it also means they won't be switching back when BB10 is released at the end of January.

For all its faults, RIM does have its loyal followers, and the new OS ought to be well received by them, but BB10 is essentially two years behind schedule and the onetime industry innovator has allowed Apple (NASDAQ: AAPL  ) and Google (NASDAQ: GOOGL  ) to own the market with a combined share north of 86%. Even with carrier support, BB10 has to be one heckuva an upgrade beyond what's already on the market to make even a dent in that hegemony.

Unsportsmanlike conduct
RIM has a long way to go in repairing the damage it inflicted on itself over the years that's caused a dramatic loss of brand value. Its playbook for recovery is a Hail Mary pass and anything less than a perfect reception will likely mean the end of an era. While it's exciting to root for the underdog, this is too much like gambling instead of investing, which is why I've rated Research In Motion to underperform the markets on CAPS.

But tell me in the comments section below whether you think RIM can avoid an open field tackle and sprint the distance for a touchdown.

There's no need to fear...
There is absolutely no argument that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (9) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 21, 2012, at 9:02 PM, Arthur1111 wrote:

    Montley Fool: You are an Apple fan and a RIMM basher. You really don't care what other investors think, because we have been sending many comments regarding RIMM, and you keep doing the same copy and paste nonesense.

    One more time: BB10 will be a great success early next year. I am sure if you do your homework, you will come to the same conclusion.

    If you think investing in RIMM is like gambling, then don't waste your time writing about it, and don't waste our time reading your ill advised comments. You are not making any sense.

  • Report this Comment On November 21, 2012, at 9:35 PM, digitally404 wrote:

    QNX, an OS that powers shuttles, power plants, and cars, is the most secure and stable platform out there. Put that power into the hands of the consumer, and you've got something of envy.

    iOS is very boring now. It works, but little new in the past, what, 8 years that it's been out now?

    Android is just a malware plagued OS good enough and cheap enough for your kids to play with.

    Blackberry is for professionals and people who don't play around but need get stuff done. Communication is power.

  • Report this Comment On November 21, 2012, at 9:40 PM, H3D wrote:

    Any last chance RIM had is vanishing with the lited success of the new lumia models.

    Lumia provides enough that the carriers will back it rather than waiting 'til March [officially] or September [more likely] maybe and probably never, BB10.

    2 years ago a QNX phone may have stood a chance. Or maybe not. But they blew it..

  • Report this Comment On November 21, 2012, at 10:22 PM, avgdown4evah wrote:

    peepeedripdays,

    your rim happy talk was amusing as the stock progressed through its long, torturous collapse, and is even more amusing during these sucker short-covering rallies. anyone who thinks BB10 will rule the day is an airhead. even Misek grudgingly gives them 20-30% chance of success. that's pretty bleak, but a rimm baggie such as yourself grasps at any feeble straw presented to you.

  • Report this Comment On November 22, 2012, at 1:05 AM, ronbeasley wrote:

    Billionaire Prem Watsa recently acummulated 9.9% of RIMM and joined its board. He has an enviable investment record.

  • Report this Comment On November 22, 2012, at 2:55 AM, PaulDEJ wrote:

    What RIM will bring to the market next year with BB10 is fresh, innovative and cutting edge. With features ios can only dream of and it will make ios look like the ancient operating system it is. For too long apple has relied on their marketing and hype to sell their inferior products but things are changing, apple stock is down, RIM is up, yet you guys keep on bashing RIM, haha, so pathetic. Keep on doing it, it just makes you look as stupid as you are!

  • Report this Comment On November 22, 2012, at 3:43 AM, NOTvuffett wrote:

    Really, I don't get it. It is sure misery to type on an iPhone and yet that is almost half of Apples' sells.

  • Report this Comment On November 22, 2012, at 7:11 AM, magnaman1969 wrote:

    BB10 has many new innovations. Aside from best in class browser,screen resolution and keyboard/touch...it has BlackBerry Balance ...that feature alone will win back millions in the BYOD category.

    Apple has lost its innovation, Android is a cheap,malware plagued data hog and RIMM is poised for some serious market share in the coming years.

    Security will be even more important as 2013 will see a huge rise in Mobile and Cloud based cybercrimes.

    Buy RIMM at these dirt cheap prices while you can.

  • Report this Comment On November 22, 2012, at 10:16 AM, infektu wrote:

    infothatsucks,

    Lazaridis still owns smth like 5.5% of RIM, and Balsilie is around 5%.

    Technically BB10 has all what it takes to be a top computing platform, and then some more.

    It will all come down to how these features will be marketed and monetized.

    I can not tell what the stock will be worth in 12 months from now (you can always ask Misek for the flavour of the day :-)) but I'm pretty sure it will be significantly higher than 10 bucks.

    One or two quarters in black will do wonders. If RIM will make 3-4-500M per quarter the company won't be valued at 5bn anymore.

    Sentiment momentum is very important, and the "steep decline" has its counterpart too.

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