A Strong Argument for Shorting RIM

Do you remember the good old days of the 1970's? The Nifty 50, the top performing stocks that everyone had to have? One would be at a cocktail party and be bragging how much money they made on Polaroid and Xerox (XRX). The Nifty 50 were "one-decision" stocks because investors were told they could buy and hold forever. Fast forward a couple of short years to 1973: The oil crisis, dollar devaluation and war in the Middle East. From January 1973 to December 1974 the NYSE and the DJIA lost over 45% of their value recording one of the worst bear markets on record. The Nifty 50 were even more decimated. Seems not all that unfamiliar to today. Are we at the abyss with our new found Nifty 50?

Research in Motion (RIMM) can be considered one of the components of today's Nifty 50. It has had a parabolic move from an adjusted price in 1999 of approx $1.00 to a more recent price of $103. Credit Suisse recently upgraded the stock to outperform with a target of $160. The insiders are not buying and are on the sidelines.

When we look at stocks we approach from a fundamental as well as a technical standpoint.

Firstly fundamental, RIMM EPS per valueline 2007 is only $1.95, no dividend and a book value of $6.40. I know, I have been at some cocktail parties where the sky is the limit for RIMM and it can only go up. But I also know I am the oddball value investor, I don't like risk or overpaying.

One of the tools we use is to compare the earnings per share to the current rate of return for U.S. government bonds [4.6%]. According to many analysts this gives the intrinsic value. This shows RIMM almost 2.43 times overvalued. However this is not close to exact and shows what the company is relative to the return of government bonds. We use many tools but this is another confirming idea. The extreme high PE [66], low book value and no dividend are really not my cup of tea or vodka tonic at the cocktail party.

Now to the technicals. RIMM has violated a 50 day moving average, one of our volatility moving averages, as well as a Major Divergence signified by the MACD and Price action.

Combining both the technical and fundamental a strong argument can be made for a short trade.

Before you run off and put on a trade, have a plan. Know where the trade works and where it does not [such as the prior high of $137.01].

Currently we have no position in RIMM

click to enlarge

Comments

[Michael Engle:]

Shorting RIMM is as dangerous as shorting AAPL. They both have a lot of momentum and emotion following their stock. Plus, everyone on the street is now doing the "blackberry walk" - you know the one.. the one where they are looking towards their shoes as they cross busy intersections.

This article says "you don't like risk" - shorting is risker than going long on this one.

2007 Nov 18 07:24 AM

[Tom B:]

"Plus, everyone on the street is now doing the "blackberry walk" - you know the one.. the one where they are looking towards their shoes as they cross busy intersections."

Which will take them out of the gene pool in short order.

RIMM has no future-- the only question is how much "present" they have. My hunch is, you want to sell ASAP. They aren't likely to have a good Holiday.

2007 Nov 19 10:32 AM

[John Lazerow:]

Jesus, Thomas, do you ever stop? Expand your horizons, get out and do some research. Walk into any cellular store and ask questions. It might lead you to change your mind. This is what I do, and it has been, and continues to be very effective. Although Apple will make us a lot of money, RIMM will actually make you more in the next 5 years. And what empirical research leads you to your conclusion that RIMM isn't "likely to have a good Holiday."???

2007 Nov 19 11:38 AM

[Tom B:]

Here's the deal: if you bet that they WILL have a good quarter, you take a MUCH bigger risk than if put money in a growing company. Maybe they WILL make it 5 years, but you are talking serious "market timing"; you are betting on being able to get out quickly, when the time comes.

2007 Nov 19 11:54 AM

[John Lazerow:]

I have been betting on RIMM having good quarters for the last year - and it has paid me a 4 bagger. The company IS growing (actually faster than Apple) and will continue to do so. Both Apple AND RIM will benefit massively from the growth of smartphone adoption. Today 120 mln annual smartphones are sold and I bet in 5 years about 500 mln smartphones will be sold annually. Enough business for all the value added players to go around. This is the thesis that you seem to ignore when looking at the smartphone business by saying RIM is going to be dead.

They even both use the same business model, although Apple does it better because they don't even offer a service, they just get paid each month from the carrier - truly brilliant. RIM's value add service offering is data delivery manifesting itself currently as push email. Now, before you say, well anyone can do push email, consider the fact that RIM controls the device presence on the network which allows them to offer many services that Apple will never offer until they have their own network peering into the cellular networks. Currently RIM is peering into about 325 networks in 120 countries and any time your device shows up on any network on any technology on any carrier, you start getting data delivered. There are real technical reasons their solution is inherently better than the iPhone for core communications. For the wow factor though, iPhone is the king.

I guess my point is that if took the time to study RIM as much as you ostensibly study and follow Apple, you could make even more money. I own both, have for a while, and will for a while. They BOTH will succeed. Do yourself a favor and get on board with RIM today.

The article above cites some inaccuracies - the Value Line EPS are out of date for 2008 (year ends 2/28/08) - I see mean first call consensus at $2.17, but who cares about the past. They'll put up at least $3.50 in 2009 (ending 2/28/09). Down 30% from a ridiculous high, trading at roughly a 31 forward multiple and actually growing faster, it's a great buy around $110. At least just buy a few shares to track it.

By the way, I only call out ridiculous and emotional statements on these boards, and the notion that RIM is dying is one of those, especially in the context of all your pro-Apple comments I have seen.

2007 Nov 19 04:35 PM

[Tom B:]

Seeking Alpha seems to be having issues lately--posts showing up more than once.

Thanks for the more detailed thoughts. The great thing about investing is that everybody looks at some subset of the same information and can arrive at different conclusions.

I think another issue facing RIMM is that it is heavily weighted towards the US market (in terms of penetration). I think now, they'll have a hard time breaking out of that; the US Enterprise market is of finite size.

2007 Nov 19 11:21 PM

[John Lazerow:]

I have been betting on RIMM having good quarters for the last year - and it has paid me a 4 bagger. The company IS growing (actually faster than Apple) and will continue to do so. Both Apple AND RIM will benefit massively from the growth of smartphone adoption. Today 120 mln annual smartphones are sold and I bet in 5 years about 500 mln smartphones will be sold annually. Enough business for all the value added players to go around. This is the thesis that you seem to ignore when looking at the smartphone business by saying RIM is going to be dead.

They even both use the same business model, although Apple does it better because they don't even offer a service, they just get paid each month from the carrier - truly brilliant. RIM's value add service offering is data delivery manifesting itself currently as push email. Now, before you say, well anyone can do push email, consider the fact that RIM controls the device presence on the network which allows them to offer many services that Apple will never offer until they have their own network peering into the cellular networks. Currently RIM is peering into about 325 networks in 120 countries and any time your device shows up on any network on any technology on any carrier, you start getting data delivered. There are real technical reasons their solution is inherently better than the iPhone for core communications. For the wow factor though, iPhone is the king.

I guess my point is that if took the time to study RIM as much as you ostensibly study and follow Apple, you could make even more money. I own both, have for a while, and will for a while. They BOTH will succeed. Do yourself a favor and get on board with RIM today.

The article above cites some inaccuracies - the Value Line EPS are out of date for 2008 (year ends 2/28/08) - I see mean first call consensus at $2.17, but who cares about the past. They'll put up at least $3.50 in 2009 (ending 2/28/09). Down 30% from a ridiculous high, trading at roughly a 31 forward multiple and actually growing faster, it's a great buy around $110. At least just buy a few shares to track it.

By the way, I only call out ridiculous and emotional statements on these boards, and the notion that RIM is dying is one of those, especially in the context of all your pro-Apple comments I have seen.

2007 Nov 19 04:35 PM

[John Lazerow:]

I have been betting on RIMM having good quarters for the last year - and it has paid me a 4 bagger. The company IS growing (actually faster than Apple) and will continue to do so. Both Apple AND RIM will benefit massively from the growth of smartphone adoption. Today 120 mln annual smartphones are sold and I bet in 5 years about 500 mln smartphones will be sold annually. Enough business for all the value added players to go around. This is the thesis that you seem to ignore when looking at the smartphone business by saying RIM is going to be dead.

They even both use the same business model, although Apple does it better because they don't even offer a service, they just get paid each month from the carrier - truly brilliant. RIM's value add service offering is data delivery manifesting itself currently as push email. Now, before you say, well anyone can do push email, consider the fact that RIM controls the device presence on the network which allows them to offer many services that Apple will never offer until they have their own network peering into the cellular networks. Currently RIM is peering into about 325 networks in 120 countries and any time your device shows up on any network on any technology on any carrier, you start getting data delivered. There are real technical reasons their solution is inherently better than the iPhone for core communications. For the wow factor though, iPhone is the king.

I guess my point is that if took the time to study RIM as much as you ostensibly study and follow Apple, you could make even more money. I own both, have for a while, and will for a while. They BOTH will succeed. Do yourself a favor and get on board with RIM today.

The article above cites some inaccuracies - the Value Line EPS are out of date for 2008 (year ends 2/28/08) - I see mean first call consensus at $2.17, but who cares about the past. They'll put up at least $3.50 in 2009 (ending 2/28/09). Down 30% from a ridiculous high, trading at roughly a 31 forward multiple and actually growing faster, it's a great buy around $110. At least just buy a few shares to track it.

By the way, I only call out ridiculous and emotional statements on these boards, and the notion that RIM is dying is one of those, especially in the context of all your pro-Apple comments I have seen.

2007 Nov 19 04:35 PM

[John Lazerow:]

I have been betting on RIMM having good quarters for the last year - and it has paid me a 4 bagger. The company IS growing (actually faster than Apple) and will continue to do so. Both Apple AND RIM will benefit massively from the growth of smartphone adoption. Today 120 mln annual smartphones are sold and I bet in 5 years about 500 mln smartphones will be sold annually. Enough business for all the value added players to go around. This is the thesis that you seem to ignore when looking at the smartphone business by saying RIM is going to be dead.

They even both use the same business model, although Apple does it better because they don't even offer a service, they just get paid each month from the carrier - truly brilliant. RIM's value add service offering is data delivery manifesting itself currently as push email. Now, before you say, well anyone can do push email, consider the fact that RIM controls the device presence on the network which allows them to offer many services that Apple will never offer until they have their own network peering into the cellular networks. Currently RIM is peering into about 325 networks in 120 countries and any time your device shows up on any network on any technology on any carrier, you start getting data delivered. There are real technical reasons their solution is inherently better than the iPhone for core communications. For the wow factor though, iPhone is the king.

I guess my point is that if took the time to study RIM as much as you ostensibly study and follow Apple, you could make even more money. I own both, have for a while, and will for a while. They BOTH will succeed. Do yourself a favor and get on board with RIM today.

The article above cites some inaccuracies - the Value Line EPS are out of date for 2008 (year ends 2/28/08) - I see mean first call consensus at $2.17, but who cares about the past. They'll put up at least $3.50 in 2009 (ending 2/28/09). Down 30% from a ridiculous high, trading at roughly a 31 forward multiple and actually growing faster, it's a great buy around $110. At least just buy a few shares to track it.

By the way, I only call out ridiculous and emotional statements on these boards, and the notion that RIM is dying is one of those, especially in the context of all your pro-Apple comments I have seen.

2007 Nov 19 04:36 PM

[John Lazerow:]

I have been betting on RIMM having good quarters for the last year - and it has paid me a 4 bagger. The company IS growing (actually faster than Apple) and will continue to do so. Both Apple AND RIM will benefit massively from the growth of smartphone adoption. Today 120 mln annual smartphones are sold and I bet in 5 years about 500 mln smartphones will be sold annually. Enough business for all the value added players to go around. This is the thesis that you seem to ignore when looking at the smartphone business by saying RIM is going to be dead.

They even both use the same business model, although Apple does it better because they don't even offer a service, they just get paid each month from the carrier - truly brilliant. RIM's value add service offering is data delivery manifesting itself currently as push email. Now, before you say, well anyone can do push email, consider the fact that RIM controls the device presence on the network which allows them to offer many services that Apple will never offer until they have their own network peering into the cellular networks. Currently RIM is peering into about 325 networks in 120 countries and any time your device shows up on any network on any technology on any carrier, you start getting data delivered. There are real technical reasons their solution is inherently better than the iPhone for core communications. For the wow factor though, iPhone is the king.

I guess my point is that if took the time to study RIM as much as you ostensibly study and follow Apple, you could make even more money. I own both, have for a while, and will for a while. They BOTH will succeed. Do yourself a favor and get on board with RIM today.

The article above cites some inaccuracies - the Value Line EPS are out of date for 2008 (year ends 2/28/08) - I see mean first call consensus at $2.17, but who cares about the past. They'll put up at least $3.50 in 2009 (ending 2/28/09). Down 30% from a ridiculous high, trading at roughly a 31 forward multiple and actually growing faster, it's a great buy around $110. At least just buy a few shares to track it.

By the way, I only call out ridiculous and emotional statements on these boards, and the notion that RIM is dying is one of those, especially in the context of all your pro-Apple comments I have seen.

2007 Nov 19 04:38 PM

[John Lazerow:]

sorry for the repeats - i guess i just wanted to make my point.

2007 Nov 19 04:42 PM

[Deep Value ...:]

You call that "a strong argument?" You're recommending shorting a growth stock because 1) you're a value investor, and 2) you don't like the technicals. That is an amazingly weak case to short any stock.

2007 Nov 20 07:10 PM