It is probably safe to say that there were more than a few people that were surprised when Research In Motion (RIMM) rose 7% by the end of the day on Friday. Everybody loves a good underdog story, and it looked a little bit like the beginning of one after it released dismal stats for the previous quarter, even having to impair goodwill. What's more, it had provided even more bleak expectations for the next two-three quarters and formally stopped issuing guidance.
The counter-intuitiveness of the rise on Friday really points out the irony and oddity of a week where Apple (AAPL) goes down and RIMM goes up. By that reasoning, next time AAPL releases spectacularly positive earnings, its stock price will evidently fall as a result. But as always, there is more at play than numbers. And in fact, while the numbers for RIMM were largely poor, its cash balance actually rose.
Moreover Jim Balsillie finally made his exit, which is hard not to see as a sad but positive event, although he is still one of the two largest shareholders. And AAPL for what its worth, had some not so positive news come out. So the world is not as upside down as it might seem in a week like the last; markets are still irrational and stocks do not always move based on palpable logic.
So why did RIMM go up last week? In spite or the absurdity, there are only a few plausible reasons.
- Investors saw the newfound candidness of management, and a still relatively robust revenue stream, coupled with the cheap price, as reason enough to buy in as a speculative value play, hoping for a healthy rebound once RIM's pending new lines are released later this year.
- Investors saw the dreary past and forward expectations, coupled with management effectively stating that it would consider some sort of marriage or outright acquisition as reason to buy in, expecting a purchase of some sort that would elevate current price levels.
- AAPL is buying it… No, sorry that was just a bad investing joke and my way of poking fun at the relentless buyout speculations.
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* Yahoo Finance
So in spite of it being counter-intuitive, there is a certain amount of rationality for the moves last week. It is never really a good thing when a company posts poor earning and the stock price rises. But for RIMM last week, it was a much needed and maybe even deserved reprieve. The real question is what does it mean for this week and thereafter?
Frankly RIMM has been so unstable that it now only takes one barely credible rumor to move it up or down significantly. As such, I would not recommend jumping into RIMM on either side right now, unless of course you are starting such a rumor. After all, it is a stock that was down nearly 8% for a time on Thursday, then up almost the same less than 24 hours later on Friday.
If anything, maybe my fellow contributor Kim Klaiman could suggest a non-directional options strategy for now. Value investors could keep jumping in, but hopefully they bring a lifejacket in the form of some kind of hedge. For now, I am paying keen attention to what happens with institutional investors and analysts.
For some reason (I will leave readers to conjecture and discuss for themselves), RIMM has maintained about 50% institutional investors, which is incredible considering its performance. AAPL which is on the opposite side of the industry spectrum, retains only a little more institutional investor count at 70%.
It will be very interesting (and important) to see if RIMM can convince the institutions to hang on over the coming months.