Canaccord Adams: Expect More Short-Term Volatility from Research In Motion

If you’ve ever owned or just watched shares of Research In Motion Ltd. (RIMM) trade, you know that the company often moves quite sharply, and can lead Canada’s benchmark index in either direction on any given day. And why shouldn’t it? With a market cap of around $75-billion, RIM makes up more than 4% of the S&P/TSX composite index’s weighting and more than 80% of Canada’s benchmark technology index.

Last Friday, for example, RIM dipped nearly 3% on reports that its yet-to-be-announced third-generation [3G] BlackBerry was being delayed until later this summer. But many observers, including Canaccord Adams analyst Peter Misek, said this was old news and a non-event. So he told clients to buy on the weakness.

On Thursday, RIM signed an agreement with wholesaler Brightpoint Inc. (CELL) to sell BlackBerrys around the world and also said it will work with SAP AG on enterprise applications. The shares moved up on the news, but clearly, it doesn’t take much to get investors trading in Canada’s most valuable company.

Mr. Misek attributes some of the volatility to RIM’s large following among retail investors, but also to hedge funds. He said:

What we heard in the last two weeks [was that] some hedge funds had put on meaningful short positions against RIM and long Apple (AAPL), and I think that caused a lot of the volatility.

He also noted that these moves are likely a result of the upcoming 3G iPhone launch.

And don’t expect the volatility to end anytime soon either. In fact, the next 60 days are expected to be very busy with RIM’s annual capital markets day [CMD] on May 11 and the Wireless Enterprise Symposium for the company’s clients May 13-15.

Historic trading patterns show that RIM shares have returned 14% during the 25 trading days that follow its CMD, according to Citigroup’s Jim Suva, which is why the analyst told clients they should be long the stock ahead of the event. He expects more positive news for the company, including BlackBerry Curve shipment numbers from Verizon Wireless for May.

While expectations for a 3G, touchscreen or 9000 series product launch from RIM are constantly changing, Mr. Suva does not expect any new product launches at the CMD. The analyst’s sources, however, have indicated that Verizon (VZ) will begin shipping the Curve in May, which he expects will serve as a catalyst for the stock.

In terms of competitive pressures from Apple Inc., he acknowledged the company’s success with the iPhone, the opening of its software development kit, which allows third-party programmers to create applications for the smart phone, as well as its June 9 developer conference – all as potential sources of volatility for RIM shares. However, Mr. Suva said the iPhone is a bigger threat to struggling smart phone maker Palm Inc. (PALM) than it is to RIM.

The longer-term outlook for RIM also looks busy, with two or three major product launches expected in both 2008 and 2009. Mr. Misek expects to see the 3G 9000 series BlackBerry in August, the Kickstart flip phone in September or October, and the “Storm” touch screen in November. Next year, RIM should upgrade the Pearl, release a touch screen BlackBerry with a slide-out keyboard, and then a device that has desktop-like applications that can used without a wireless connection, along with streaming and video storage.

So unless you’re a wonderful and remarkable trader, investors need to focus on the long-term – factors like the macro fundamentals impacting RIM and company-specific issues like its products and market expansion opportunities. But that doesn’t mean they shouldn’t take advantage of short-term buying opportunities either.

Comments

[mojobeta]

Apple and its leader Steve Jobs are brilliant product designers and highly talented at getting products to market rapidly; moreover, the advent of open architecture is a wile move to garner designer support. But the iphone is not the choice of businessmen and professionals. In fact, this must feel like deja vu all over again to Jobs because the situation is analogous to the PC/MAC historical competition. When Microsoft introduced software early-on and Word and Lotus 1-2-3 gained their foothold with PC users, the "office-next-door" phenomenon developed. Despite the superior operating system and especially its superior graphics, the MAC couldn't compete with the convenience of business first-time-users learning PC software from the guy or gal in the "office-next-door". The BLACkBERRY phenomenon is entirely analogous to the PC/MAC phenomenon. Once again businessmen have chosen a product perceived as a "serious/professional product" (the BLACKBERRY)leaving Apple to reap the dollars of youthful, maternal, gift-recipients and rebels plus the rich who can afford both a BB and an iphone. The really good news is that the market(s) are large enough for both companies to make their numbers but serious popular products usually command higher mutiples in the long run than simply popular products and office-next-door products are typically a sure thing compared to simply "popular" products. BUY RIMM for an intermediate move to $175.
Mojobeta.

[InvestorsLive.com]

Looking at the following for Monday, all the big boys will take a break and consolidate (GOOG, AAPL, BIDU, RIMM, V, MA) its only healthy... now we have the MSFT YHOO saga...

www.investorslive.com/blog/2008/05/sunda... /

Thoughts on RIMM - I think $140-150 by June: www.investorslive.com/blog/2008/05/recap... /