"Suddenly, no one likes Research in Motion (RIMM) any more, at least that's the impression you get from the media," observes Gordon Pape. In his Internet Wealth Builder, he offers a contrary -- and bullish -- view of the smartphone maker.
"To hear some analysts tell it, the BlackBerry maker is going the way of Nortel. It's just a matter of time. For example, analyst Jim Suva of Citigroup Global Markets recently issued a sell signal on the shares, saying that RIM's long-time dominance of the smart phones market is over.
"For the record, many analysts disagree with Suva's assessment. Credit Suisse has reiterated its 'outperform' rating with a target price of $95. Bank of America/Merrill Lynch has a $100 target, Scotia Capital has a $103 target and CLSA Asia-Pacific Markets has a target of $100.
"RIMM has a long love/hate relationship with investors. No one paid much attention to the stock after it went public in late 1997 until it suddenly caught fire in 1999, gaining more than 2,800% in less than two years.
"Then the tech bubble burst and RIM came crashing down. In 2002, you could have bought shares for as little as $2.20. Don't you wish you had done so? From there they moved steadily back up to over $140 a share in mid-2008 before they were socked by the market meltdown that followed. Now they are trading for less than half that price.
"Can they go lower? Sure. That's why I stressed from the outset that this stock is only suitable for investors who can tolerate risk. If your stomach starts to churn on every piece of bad news, you don't want to be here.
"I recommended RIMM because I believed it had been oversold, and still do. The company has proven its resiliency before and I believe it will continue to do so. It has met every challenge with new and improved products. Why should that suddenly stop?
"Yes, its market share may drop. But the market itself is growing. The BlackBerry used to be seen strictly as a business tool; now it is becoming increasingly popular with consumers.
"The introduction of the iPhone had a lot to do with that and the Apple product is certainly a major competitor. But based on the evidence to date, I believe that RIM's sales and profits will continue to grow.
"However, the decision to buy back up to 21 million shares for as much as $1.2 billion sends mixed messages to investors. On one hand, the company is effectively saying that it considers the current market price to be too low and that a buy back is one of the best investments it can make.
"On the other, it means that a large chunk of money that could have been spent on staying a jump ahead of the competition is instead being used to support the stock price.
"RIMM's board of directors seems to feel the company can have its cake and eat it too, saying in a press release that 'a share repurchase program at this time is in the best interests of RIM and its shareholders, and will not impact RIM's ability to execute its growth plans given the strength of RIM's balance sheet and expected cash flow generation over the next several quarters'.
"Perhaps. But for a company that is facing the most aggressive challenges of its relatively young life, the buy-back has to be seen as a gamble.
"Despite my concern, I am maintaining my Buy rating on the stock. I thought it was cheap when I originally recommended it in September at $75. Well, it's even cheaper now. Just remember, RIMM is not for the faint of heart."
Steven Halpern's TheStockAdvisors.com offers a free daily overview of the favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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Reader Comments (Page 1 of 1)
11-19-2009 @ 1:21PM
Bankfraud said...
I agree with almost everything said except for the Buy Back. The people running a company have a fiduciary responsibility to maximize the rate of return on owner equity. If they see an investment that can beat their current 34.07% return on equity then that is where the funds should go. Because of the current low stock price I can't help but feel that the rate of return should far exceed 34% and we the shareholders will be all the better for it!