Research In Motion: The Party Is Over... Sell Now

| About: BlackBerry Ltd. (BB)
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The Gist

Research In Motion Limited (RIMM) has clawed its way back to the $15 level, rising 90% in just three months.

Speculation regarding the release of the BlackBerry 10, better than expected results last quarter, and positive results by competitors has pushed the stock higher. I posit investors should fade this rally and sell now. This is a classic case of buy the rumor, sell the news. This is only one of many negative factors that may hamper RIMM's ability to move higher. In the following sections, I will lay out my bearish case regarding the stock.

The Stock Has Run Too Far Too Fast

RIMM has ascended 90% in three months. This move is unsustainable. Nevertheless, investors caught up in the euphoria most often can't see the forest through the trees and continue to hold the stock on the way back down.

The price action over the last three months is parabolic, which often marks the end of a stock's upward momentum. All parabolic moves are inevitably proven unsustainable and break down at some point. How many high-flying stocks have you watched come crashing back to earth recently? The answer is a whole bunch.

The following is a famous quote from Benjamin Graham, a famous value investor who has made millions in the market:

"Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed."

I believe it is quite apropos regarding RIMM's recent moves both up and down. I posit RIMM is at an inflection point and the most likely next move will be to the downside. Looking at the chart, you can see RIMM has made its way back to just under the $15 mark where it was prior to taking a nosedive. This should be a very strong resistance level as white knuckled longs make it back to break even and sell.

Classic Case Of Buy The Rumor Sell The News

The "buy the rumor, sell the news" phenomenon occurs all the time in the markets today. Investors buy up stocks based on what they believe will happen in a given earnings report, economic event or new product release (the rumor). After the event transpires or the report is released (the news), they dump their positions and the stock moves lower. These buy the rumor, sell the news spectacles often apply to things like new products being announced. It seems RIMM may be experiencing this effect as we speak regarding the release of the BlackBerry 10.

What happens is the stock rallies hard into the new product release. The rally occurs because investors emboldened by the rumors their favorite stock - RIMM in this case - is going to hit it out of the park in regards to exceeding earnings estimates and has new products on the horizon that are a sure thing to be successful and are revolutionary. The buying prior to the new product release runs the stock up leaving it vulnerable to profit-taking once the actual product is released even if the product is well received.

The "buy the rumor" portion of the thesis is proven by RIMM's enormous move of 90% in the last three months. There is no disputing investors are chomping at the bit to get in to the stock prior to the release of the BlackBerry 10. The first part of the premise has already been revealed as true, people are definitely buying on the rumor. I'll be waiting on pins and needles to see if they sell on the news. My guess is they will.

BlackBerry 10: Too Little Too Late

RIMM is way behind the curve in my opinion. The party is over and the BlackBerry 10 will be too little too late. We just went through the holiday buying season where many potential buyers just purchased a new phone. Many of them most likely signed agreements and are locked into contracts. I see this as a huge opportunity lost by RIMM. The potential for signing up new subscribers has been severely diminished by not getting the product out in time for the holiday buying season.

Competition Too Strong

RIMM lost one million subscribers last quarter alone. This is not a good trend. The competition is eating RIMM alive. Google's (NASDAQ:GOOG) Android smartphones have the lion's share of the market thanks to a myriad of phonemakers but primarily Samsung Electronics Co. Ltd. (OTC:SSNLF). The Apple (NASDAQ:AAPL) iPhone is the next largest competitor followed by Microsoft (NASDAQ:MSFT) and Nokia's (NYSE:NOK) seemingly smash hit line up of phones. Nokia recently pre-announced its Q4 results. Nokia shares were up 20% on the news that it "exceeded expectations and achieved underlying profitability." Lumia shipments were above expectations and significantly higher quarter-over-quarter. The competition is steep and fierce. I don't see RIMM regaining past glory. Their products have lost their mojo.

RIMM Has No Apps

Apps are a big draw for phone users and RIM is way behind the competition. RIMM has approximately 100K apps while there are close to 1 million apps for Apple and Android phones. This is a huge negative for new phone buyers.

The Bottom Line

RIMM's stock has run too far too fast, the BlackBerry 10 is too little too late, the competition is fiercer than ever, and the stock is bumping up against a major resistance level. Combine these facts with the buy the rumor, sell the news phenomenon and the risk/reward for staying long here is unfavorable. I would sell now if I was long the stock.

Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security. If you choose to start a position in any stock, I suggest layering in on a weekly basis at a minimum to reduce risk. Set a stop loss order to minimize losses even further if you wish.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NOK over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment.