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." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll 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.
Analysts of a feather flock together
Following the lead of fellow megabanker Citigroup, JPMorgan Chase announced yesterday that it, too, is feeling more bullish on Research In Motion
The Canadian smartphone maker held an "investor day" Monday, you see, and JPMorgan came away from it reassured that RIM will be able to maintain margins in 2009. Selling prices are holding up, and RIM assures us it will not need to spend a lot researching and developing new BlackBerries for the masses this year.
While not buying into the thesis entirely, JPMorgan now feels confident enough to upgrade the shares to "neutral," and predicts the stock will basically tread water, and end the year selling for $74 a share.
Personally, I remain as bearish on RIM as the analysts are bullish -- and for the same reason I outlined back in April: The stock's too expensive. (I put its intrinsic value closer to $25 than to JPMorgan's $74 price target or Citi's $100.)
So why even mention the upgrade? (Two mediocre stockpickers issuing upgrades, and one rich valuation makes for a pretty weak buy thesis, after all.) I mention it partly because JPMorgan is saying the same kind of things Citi told us two weeks ago; partly because Citi itself chimed back in yesterday, reiterating its buy rating on the stock.
According to Citi: "Gross margins decline during the past 9 months appears to be resolved" and inventories in sales channels are now "low" -- suggesting RIM could be poised to sell more smartphones to keep those channels brimming. Citi notes furthermore that sales have been helped by Verizon's (NYSE: VZ) successful buy-one-get-one-free promotion, which has been extended.
Converging, converging ...
It seems a consensus is forming on Wall Street, and it's one that views RIM in a very positive light. While we could hope to see a few analysts with better records than these two have, recommending RIM -- both JPMorgan and Citi get only about 49% of their recommendations right, according to CAPS -- the mere fact that the upgrades happened at all helped RIM's share price avoid the market's down day yesterday.
Contact! Convergence is here
More important than RIM's yo-yo-ing stock price is what the analysts are saying about the cell phone market in general. Citi says: "Subsidies continue to go to smart phones & away from feature phones ... Smart Becomes Average as mainstream users now adopt smart phones vs. high end niche segment previously..."
Translated from staccato-stockpicker-speak, this means that once-groundbreaking smartphone makers like RIM and Apple
It explains why, in entering the cell phone market, Dell
Strange as it may seem, increased competition from new companies flooding into the market may in fact not entail margin-crushing price wars for the companies already living there. Paradoxically, there just might be room for everybody to profit, here at the top.
(But in case you're wondering, no, that still doesn't make RIM a buy in my opinion. If you want to play the bull thesis here, look at someone a bit more skilled at generating free cash flow, such as Apple.)
Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he was recently ranked No. 544 out of more than 130,000 members. The Fool has a disclosure policy.