RIMM versus AAPL: Which Stock Would You Buy For Your Investors?

There is no classic paired trade opportunity with Apple (AAPL), and Research in Motion (RIMM). The success of the iPhone, despite the “bad connection” with AT&T, is proof that there is room in this market for both types of products: consumer and business.

Apple is lead by magician Steve Jobs who I think I bought the Brooklyn Bridge from for a hefty price, recently. But with the continuing upward value of N.Y. real estate, I don’t even feel like I was ripped-off. Seriously, the crack-berry addicted business user base of RIMM, compared to the more personal, and niche use of the iPhone, is hauntingly familiar.

Just like the Mac/PC war has proven, winners, and smaller winners can co-exist. Let’s look at some of the facts in order to make an educated assessment of the situation.

Take a look at the six and 12 month charts of AAPL and RIMM, and let me know which stock you would want to own for your investors:

AAPL vs RIMM 6-month chart:

AAPL vs RIMM 1-yr chart:

The smart answer perhaps is both, but with my multi-factor models pointed squarely at my head - my one answer is RIMM.

The Ontario-based company Research in Motion was founded in 1984, and has been one of the fastest growing companies in the mobile communications market. To keep up with growth in demand for its products, the company has gone from 200 employees in 1998, to 6,200 today. With a market capitalization of about $40 billion, and annual revenue in excess of $3 billion, RIMM is one of the largest companies in the wireless market, and continues to grow rapidly.

Initially when Apple announced its plans for releasing the iPhone back in January, RIMM’s stock appeared to be adversely affected by this news, as evidenced by slight stock price declines in the weeks following the announcement. Eventually investor sentiment turned positive as the realization that the introduction of the iPhone could be a potential benefit to RIMM, even though the iPhone would compete with RIMM products in certain markets.

Odd as this may seem, investors began to think that the introduction of the iPhone would bring a great deal of new attention to an industry that RIMM already holds a leadership position in, ultimately producing more business for RIMM. RIMM’s stock has continued to rise, in part by the mega news that its proposal for entering the vast market in China has been approved, thereby creating the opportunity for billions more tired fingers!

RIMM’s fundamentals back up its stock performance beginning with its year-over-year revenue growth of 57.57%, along with a net income growth over the same period of 99.48%, which demonstrates just how quickly this company is growing. Its profitability measures are also encouraging for the company boasted a net profit margin of 20.63%, over the trailing twelve months compared to its peer group average of 5.60%.

RIMM posted a Return on Equity [ROE] of 29.72%, which exceeded the industry average of 8.30%, over the past year. Despite its track record for growth, RIMM has still managed to run its business with low leverage. This is demonstrated by a Total Debt-Equity ratio of just 0.25%.

Along with its strong fundamentals, RIMM still appears to be growing at a reasonable price. Its Price-to-Earnings (P/E) ratio is high at 56.17, but when factoring in growth we calculate a Price-to-Earnings-to-Growth [PEG] ratio of only 0.57. This is an indication that given its growth rate, the stock price is relatively low.

Don’t get me wrong, I am an Apple fan, and with a P/E of about 42, AAPL with its wide range of hardware, and software offerings still may be a good buy. But, for our concentrated portfolio, at this time, we are investing in business users, China and RIMM.

Disclosure: Mr. Corn is CEO of Clear Asset Management Inc. Research in Motion (RIMM) is a holding in the actively managed Clear Large Cap Growth portfolio. Mr. Corn owns shares of RIMM directly through his participation in the portfolio.

Comments

[charanischiu]

If we concern the future development of APPLE(iPhone) and RIMM(Blackberry), iPhone seems to be well leading in both hardware and software design. Although iPhone function at present is behind Blackberry like 3G/3.5G or GPS, word/excel programs.
iPhone does have the capability to upgrade all those functions, and iPhone should have no problem to enter the China market once it launch in Asia. Blackberry still need software supplier to make it works. There also are problems happened on the conventional keyboard design with mechanical key buttons, small screen display area.

[Tom B]

RIMM has a few more years of life, probably, but I prefer longer term investing. And they are a one-trick pony. Apple has a plethora of growth opportunities. Even if they never sold another iPhone, they would STILL have plenty of growth opportunities.

[Andrew Corn]

Clearly AAPL is a great software developer and we have held their stock for gains several times of the last two years and have published favorable research. The corporate/home and niche use analogy is still clear until iPhone addresses enterprise use, cracks the corporate market and focuses on the productivity of business people.

[Brewer]

Perhaps, but only Ross Perot ever lost money betting on Steve Jobs. :-)

Seriously, the argument that corporate users can't use iPhone is ridiculous. Corporate users are like everyone else, they want the best. They don't want to look like dolts using phones designed in the last millenium. If you want to look like Maxwell smart and his shoe phone, go ahead.

Besides, the corportate monoploy-lock to Outlook/Exchange has already been anounced for iPhone, and folks are clamoring for their legislators to break the U.S. wireless carrier restrictions (just so they can add an iPhone to some other network.)

Crackberry uses the same network as iPhone, it just can't USE the bandwidth since it is PRIMITIVE by comparison.

And, yes, Wall Street is STILL blind to OS X, they only see iPod and iPhone. OS X is destined to overtake Windows. Believe that or not.

[peatmoss]

Corn is way off base. Rimm has a limited future and will be crashing within a year or two. Time to dump the stock now. And yes, OS X will over take Windows which has never lived up to it's hype. Ironic that Jobs is really the creator of both since Microsoft simply borrowed his ideas in a half baked way and got away with it.

[John Lazerow]

Corn is absolutely right, but you want to own both. The smartphone market is a small but growing pie of the overall mobile phone market (little over 100 million smartphones will be sold in 2007).

RIMM will be around for a long time because they have the premier secure data delivery system that would take at least 2 years to replicate, not to mention all the governmental security clearances. Right now email is the main application, but over time others will emerge.

It is absolutely absurd to think they have 1 or 2 years left. Look at their distribution before you make asinine comments. They sell through 300 carriers in over 100 countries adding 20 carriers the last quarter alone. Apple has 1 carrier in 1 country (although a large one) and will have 1 in each country. Not every person in every country will want iPhones. Blackberry will continue to dominate everywhere iPhone isn't and do just fine on networks that sell iphone. After all, they only have 9 million users out of about 3 billion global mobile phone users. Those numbers just can't be ignored.

I love my iphone and my blackberry!

[Hayweed]

How does Rimm continue to dominate when they only have 9 million subs. They sold 2.4 milliion phones last quarter which is a run of 9.6 milliion per year. Hardly domination much less a drop in the bucket. If AAPL claims they want 1% which is 10 milliion phones, Congrats Rimm you have almost made it to 1% which is world domination in cell phones.

[andys2i]

The reason is clearly that the street thinks Apple is a better company that will execute it's iPhone strategy better than RIMM and hence make big inroads into their market share. This is why I like and bought Apple stock, (see details here ) and believe it is a $200 stock by the end of summer.

However if Apple missess forecasts or earnings then all bets are off and RIMM will surge. So buying RIMM now is a bet that Apple will fail. Otherwise go with the market.