Palm: A high risk/high reward smartphone play that's not for the squeamish

Further, the counter view argues that the Pre, while not as Web/task diverse as Apple Inc.'s (NASDAQ: AAPL) iPhone, nor as message-rugged as Research in Motion's (NASDAQ: RIMM) BlackBerry series, nevertheless should exceed expectations, from a market share standpoint, due to the secular smartphone trend. In other words, the smartphone market is big enough for these three devices, and more.

And technically, Palm's stock chart is confirming the latter: a strong uptrend, with only one corrective pull-back. PALM will encounter 2-year resistance at $18, and then psychological resistance at the $20 level, but after it mounts those hurdles, look for PALM to march north, on market-share gains.

Hence, I'm reiterating my June 15, 2009 Buy rating for PALM, issued when shares were priced at $14.12. If you bought PALM then, you're up about 15%.

Further, PALM's upcoming public offering of 2.0 million shares at $16.25 per share (overallotment option: 3 million shares) typically would be dilutive, but the view from here argues the offering won't be, due to institutional demand.

Still, PALM remains a high-risk stock not suitable for squeamish investors. The First Call FY2010/FY2011 EPS estimates for PALM are a loss of 37 cents and a profit of 42 cents.

Stock Analysis: Palm Inc. is a high-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in PALM now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your PALM position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $4.50.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.