Selling RIM Now Makes Sense

Shares of Research In Motion (NASDAQ: BBRY  ) traded as high as $18.08 this morning.

You have to go all the way back to 2011 to find the last time that the BlackBerry maker's stock was trading this high, and RIM is in a far uglier place these days.

RIM has posted losses in each of its past three quarters, and Wall Street sees more red ink in the future. Analysts see revenue plunging 39% lower in its fiscal year that ends next month. On the surface, the company's a mess. RIM's yielding market share with every passing quarter, so why has the stock nearly tripled since bottoming out just four months ago?

Bouncing back
Despite the deficits -- and Wall Street sees RIM posting losses on an annual basis until at least fiscal 2016 -- the stock bottomed out because it was just too darn cheap.

RIM closed out its latest quarter with $2.9 billion in cash. Its subscriber base is finally starting to contract, but there's still clear value in RIM's 79 million active subscribers and its solid reputation with both wireless carriers worldwide as well as enterprise customers.

These arguments were strong enough to lift the company after trading for as little as $6.22 in late September, a price tag that valued the company for just a little more than its balance sheet greenery. However, as it broke through into the double digits in November and continued to creep into the teens, it was all due to the buzz-generating hope that BlackBerry 10 will save the day.

Sell on the news
We live in a world dominated by Apple's (NASDAQ: AAPL  ) iOS and Google's (NASDAQ: GOOGL  ) Android products, yet the two hottest mobile stocks in recent months have been laggards RIM and Nokia (NYSE: NOK  ) .

Nokia's stock has also nearly tripled since bottoming out this summer.

Nokia has also delivered three consecutive quarterly deficits, and revenue is going the wrong way. However, the company's partnership with Microsoft (NASDAQ: MSFT  ) , which will generate billions for Nokia by supporting Windows Phone through its Lumia line of smartphones, is winning over investors that don't see the fading feature phone king as a value trap.

RIM and Nokia haven't merely gotten dead-cat bounces. These stocks have nearly tripled, and that may stick around until either stock's helium-filled rally gets pierced by a pin.

RIM's pop may come next week.

This wouldn't be the first time that the old "buy on the rumor, sell on the news" adage rears its party-crashing face.

Expectations have grown too high for BB 10, and perhaps unsustainably so. Microsoft's Windows Phone 8 had plenty of buzz ahead of October's launch. Yes, Nokia sold 4.4 million Lumia phones during the holiday quarter, but Apple and Android claimed tens of millions of smartphones championing their mobile operating systems during the same three months.

Why should RIM fare any better?

IT departments still largely favor BlackBerry's secure platform, but employees crave the open-ended ecosystems of apps in the iOS and Android camps. More corporations are allowing employees to use iPhones for work use, and government agencies like the National Transportation Safety Board and the General Services Administration are ditching RIM, too. Developers aren't in a hurry to support BB 10, at least until RIM proves that it can grow its subscriber base again.

Cold feet after a hot stock price
Even the more bullish analysts on RIM are only cautiously optimistic.

Goldman Sachs analyst Simona Jankowski turned heads two months ago, raising her price target from $9 to $16. However, even Jankowski put the chances of BB 10 succeeding at a mere 30%.

It's merely a coincidence that Nokia and RIM have ascended as Apple has fallen since peaking in September.

Apple isn't teetering because of Windows Phone 8 or BlackBerry 10 fears. Apple is tumbling because Android is eating its lunch.

Shares of RIM soared 13% yesterday on interview comments by its CEO considering the possibility of licensing its mobile operating system or selling its hardware operations. Licensing won't matter. It will still be cheaper for handset manufacturers to go with Google's open-source solution, and that's where the app support is anyway.

The day that RIM longs have been waiting for is now exactly a week away. Is there any chance that the company's presentation can live up to the hype of a stock that has nearly tripled in a span of just four months?

It's dangerous to short RIM, but right now it's just as dangerous to own it.

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Read/Post Comments (11) | Recommend This Article (6)

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 January 24, 2013, at 7:20 AM, rapag wrote:

    As the stock price has indeed risen significantly during the last few month, its still low compared to the 2009-2010 levels (not to speak about 2008..) for the following reasons

    - RIM's market-cap is only a very tiny fraction of apple's. Apple's market-share as well as its market-cap may already have reached its point of culmination and cannot be enlarged much further. There simply isn't much left of the original excitement and product-identification apple was able to offer. It is simple boring to buy a divice everybody else already owns.

    So the question is which products will then be bought. I guess its not android-phones because the OS is just to simple and not powerful enough, in particular does not allow multi-tasking. In addition, a lot of people do not like google inc. tracking internet behavior and other personal data.

    As far as Nokia and WinPhones are concerned, a disadvantage may be the already existing near monopoly of microsoft in the pc-arena. People don't want MS on their phone in addition. As is the case with google, people are afraid that one single company is getting to much personal data, the destribution of which getting out of control.

    RIM in my opinion with its seemingly more powerful BB10 OS will offer a solution not only in regard to data-protection and security issues through its certified security standards and its complete separation between personal and business data. As pre-launch reports show, this new OS in particular will allow real multi-tasking a lot of people will love.

    And don't forget: As of dec. 31 2012, about 130 Millionen shares in RIM reportedly were sold short. The short-sellers may soon be proved wrong. If RIM is going to deliver what is expected on Jan 30, 2013, this may trigger a huge short-sqeeze, potentially pushing the stock-prize faster than otherwise to past levels. That is why i am long RIM and am feeling quite comfortable.

  • Report this Comment On January 24, 2013, at 7:58 AM, magnaman1969 wrote:

    There is a MAJOR short squeeze of epic proportions about to unfold with RIM stock....see Jim Daveo's video on You Tube from his BNN interview.....this stock is set to make some major moves. Fundementals alone will ttake it to 25 bucks from the 17 today.

    Rim is back.

  • Report this Comment On January 24, 2013, at 8:06 AM, dsong30 wrote:

    You guys at motley fool are fools. Motley fool had a blow out view on Apple's earnings. Now you guys are apologizing for your view. Now you are stating to short RIMM, yeah OK. Perfect company name for fools..

  • Report this Comment On January 24, 2013, at 8:28 AM, magnaman1969 wrote:

    Have a look at Jim Doak explaining how the short squeeze of the century will unfold with RIM...

    a must see for RIM Longs and Shorts

    http://www.youtube.com/watch?v=dzz4i0zRpPg

  • Report this Comment On January 24, 2013, at 8:42 AM, TimKnows wrote:

    We get 100's of these dumb articles by the hour now. Apple needs to spend its money on better propaganda. RIMM stated, quite clearly, that they are after the ENTERPRISE market, how did you miss this? Sure, iPhones are so uncool with teenagers now, so the worlds fastest browser will appeal to them, but it is business that wants security and that word doesn't fit in the same sentance with Android. We seem to totally miss the fact that Prem Watsa is right about the future of RIMM and you are wrong. Who do we listen too, Prem or a guy trying to create a job for himself with no knowledge of the markets and how they work? Score one for Prem.

  • Report this Comment On January 24, 2013, at 9:16 AM, etgh wrote:

    Yes, dump the stock......

    They're on the eve of the biggest product product in their history !

    Yeah, go ahead, sell !

  • Report this Comment On January 24, 2013, at 9:22 AM, Arthur1111 wrote:

    You also suggested to sell RIMM back in Sep. when the stock was $6.22. The stock has almost trippled since then.

    You also suggested to buy AAPL when the stock was at $705. The stock is now at $462, a drop of 34%.

    How do you guys make money?

    Why do you keep on making suggestions when you are always wrong?

    If I toss a coin, I would have better luck and advise than yours.

    I feel sorry for anyone who listens to you.

  • Report this Comment On January 24, 2013, at 10:07 AM, BR14 wrote:

    "How do you guys make money?"

    They still do - so you work it out. You really think they take their own advice?

    If they followed their own advice they couldn't afford a computer to post their blogs!

    It's about persuading the masses to do stupid things. And the massive short positions on RIMM suggests it's highly effective.

  • Report this Comment On January 24, 2013, at 10:36 AM, Arthur1111 wrote:

    BR14,

    Are you suggesting they are long RIMM and Short AAPL. That would be the exact opposite.

    I can see this if they want to sell AAPL at a higher price if they own the shares, and want to buy RIMM, advising investors to sell. But, they have been doing this for 5 months.

    Anyways, I do my own assessment. RIMM is the best investment for 2013 for now.

  • Report this Comment On January 24, 2013, at 10:54 AM, MAXwolf wrote:

    The "fool" collectively has never understood this stock or company. Articles in the past about this stock have referenced the wrong management team (the team quoted never worked for RIM) and the wrong stock prices.

    I am now starting to doubt everything you say, as in this case the sloppiness and errors contained in the articles are inexcusable. It was revealed to me when you started writing about a company that I knew more about than your professionals.

    I have taken your newsletters for many years, but now think I am dropping out.

    Nick

  • Report this Comment On January 27, 2013, at 12:14 PM, TimmyBee123 wrote:

    "..Expectations have grown too high for BB 10, and perhaps unsustainably so.."

    Isn't the stock merely at book value?

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