Research In Motion
A weirdly long way down
Once an industry-leading mobile technology company, RIM has had just a horrible year, and it pretty much deserved it. The stock has cascaded from its one-year high of $33.52 to now below $7 per share. How does a huge mobile company lose nearly all of its value in a measly year? Remove the element of Mr. Market for a second to take in the magnitude of the fall.
Let's say you own a business that you could sell for $20 billion (the market cap RIM once commanded). You are in an industry that is incredibly disruptive and is the opposite of a dying art. Over the course of a few years, your sales dwindle and cash flow goes negative because you failed to innovate at the rate of your competitors.
Regardless of the short-term weakness of your business, can you imagine selling your $20 billion business a year later for $4 billion? Maybe if you'd walked through your facilities lighting fire to everything inside, or if you owned a VCR refurbishing business.
My point is, regardless of how poorly Research In Motion has been run the past couple of years, it's hard for me to imagine it obliterated four-fifths of its massive company that quickly. If you blew up the numbers to scale, it would be like having Wal-Mart close 1,800 stores in a year.
I'm not trying to argue that RIM is a strong company. But I think between its patent portfolio and the sheer fact that there is the structure of a technology company ready to be utilized, it can realistically turn things around. And I am certainly not the only one.
A man whom I reference more than I should, Prem Watsa of Fairfax Financial (NASDAQOTH: FRFHF.PK), just doubled his stake in Research In Motion. His double-down makes him the single largest stakeholder of the company, owning more stock than both of the company's founders. Watsa, via Fairfax, now owns 10% of RIM. He isn't shy about his reasons, or what he expects from the ailing company. Watsa believes shares are deeply undervalued and that a turnaround will take three to five years.
I won't try to highlight what I believe the billionaire investor sees in the company, because it would be speculation, but I have a lot of faith in this guy. Watsa took a large stake in the Bank of Ireland just as Europe was beginning to sink into the Atlantic. While many people scoffed at the decision, he cited the fact that the Bank of Ireland was the only Irish bank not to take bailout money, and that it was well capitalized and would make it through the crisis. He bought in at a priced-for-death per-share cost and made a killing.
Watsa owns a seat on the board of RIM, and I think that may be the single best thing that could have possibly happened to the company.
You need to have a large risk tolerance and a big dose of patience if you want to get in on the RIM story. The company recently delayed the release of its sort-of-not-really highly anticipated BlackBerry 10 operating system and an accompanying device. That and still-dwindling cash flow are going to keep the price low, so don't expect any sudden spikes. This is a long-term play, folks, and a risky one at that. But if you believe in the concept of deep value, and a deity in the form of a value-investor board member, then this may be the best time to buy in on Research In Motion.
On the other hand, if that sounds like taking a cyanide pill, the Fool has some much safer, much more stable stock picks. In this report, our analysts highlight three big American companies that are poised to profit from international expansion. Read the report here.
Fool contributor Michael Lewis owns none of the stocks mentioned. You can follow him on Twitter, @mikeylewy. Motley Fool newsletter services have recommended buying shares of Fairfax Financial and creating a bull call spread position in Wal-Mart. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.