Investors can make huge gains when buying deeply depressed stocks that other investors have given up on. Sometimes it pays to invest in potential long-term turnarounds or in stocks that have short-term problems. But investors can end up trying to catch a falling knife, resulting in either big losses, or with an investment that stagnates and ultimately drifts lower. For months and even years, some have been hoping for a turnaround or a buyout with two tech companies, Nokia (NYSE:NOK) and Research In Motion (RIMM), but the hopes have not materialized as some have expected. It seems that both of these stocks are quite often the subject of takeover talk or hopes for a turnaround which causes a spike in the stock.
So far, the best strategy has been to sell on the rallies and that is likely to be the case going forward. Both of these companies have had opportunities for a buyout or a turnaround, and plenty of time has passed with no major deal or turnaround transpiring. That could mean that no company wants or needs to buy these smartphone makers. As time goes by, the chance for a deal or turnaround is probably fading since the fundamentals and profits continue to drift lower.
Technology moves fast and companies in this sector can be one of the least likely to turnaround, as the dynamics change with new competitors and products. If the current trends continue, these two stocks could be hard-hit at the end of the year when tax-loss selling begins after the third quarter. Investors who want to try playing these names as a potential bargain or turnaround should patiently wait for year-end tax loss selling and more investor capitulation. In the meanwhile, here is a closer look at both these companies which investors should consider selling on rallies:
Nokia once set the standard as a maker of mobile phones, but smartphones from companies like Apple, Inc. (NASDAQ:AAPL) have been devastating to companies like this one. Investors have watched this stock drop from about $40 in late 2007, to below $3 in just about 5 years. The company has had to cut the dividend and earlier this year, it warned on earnings.
Recently, the shares popped up due to speculation that Samsung (OTC:SSNLF) might be interested in buying Nokia, but the company flatly denied those rumours as being untrue. Samsung is a leading smartphone maker that is profitable and successfully competing with Apple and further contributing to Nokia's downtrend. Because of this, it is hard to see why Samsung or any other company would want or need to buy a company that is becoming increasingly irrelevant. How many articles have we seen about how Nokia was a bargain at $20, $10, $6, $5 and now below $3 per share, that have been giving investors what has so far been false hope? This company does have some potential for what might be a limited turnaround. However, until there are some real signs of that in the product line and the financial results, this stock might be smart to sell on rallies that promise a buyout or other hopes.
Here are some key points for NOK:
- Current share price: $2.77
- The 52 week range is $2.61 to $7.38
- Earnings estimates for 2012: n/a on Yahoo
- Earnings estimates for 2013: n/a on Yahoo
- Annual dividend: 18 cents per share which yields 5.9%
Research in Motion Ltd. investors have now seen a series of lower lows and lower highs as the stock drifts down for many months. These shares have also seen a number of spikes over speculation that the company would be the subject of a takeover or some sort of deal for its patents. However, no takeovers have occurred and companies are rarely purchased for patents alone because it's usually far less expensive and less risky to just license any needed patents. This company makes the once extremely popular Blackberry phone, but it has had difficulties in keeping the technological and customer edge it once enjoyed. The company has seen turnaround attempts fizzle and it has had management shakeups.
Some investors hope that the company can find a buyer or sell assets in a breakup. However, it's hard to see why any buyer would want to step into a company with shrinking profits and market share, and then be faced with trying to turnaround the product line and still deal with daunting competition from the likes of Samsung and Apple. If Research in Motion has not been able to succeed with a turnaround, why would any other outside company have a strong chance? Unless there is another Steve Jobs about to takeover RIM, investors will probably be best off by getting out before any additional disappointments occur and in advance of what is likely to be tax-loss selling, which could start in October.
Here are some key points for RIMM:
- Current share price: $10.35
- The 52 week range is $9.57 to $37.10
- Earnings estimates for 2012: 60 cents per share
- Earnings estimates for 2012: 65 cents per share
- Annual dividend: none
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.