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 (BB 1.04%), 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

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 (NOK -3.12%) 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 (AAPL -0.35%) and Google (GOOGL 0.43%) 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.