To many, this might look like an odd pair to trade. And in many ways, I agree that it is. I was looking at my screen today trying to see the better opportunities and I thought the best opportunity right now is Research in Motion(RIMM). Yes, it continues to be under attach from both Apple(AAPL) and Google(GOOG) with Palm(PALM) slowly being taken out of the market. So the logical step was to pick RIMM against either AAPL or PALM. But I do already have a long position on AAPL (not that I would short Apple anyway… it would be almost as bad as shorting Baidu). Shorting Palm would be something to consider but at this point, Palm is down over 40% this year alone and everything seems to be going awfully wrong for the smartphone maker with its stock going dangerously approaching 5$.
Reaching that point is significant because many investors (institutional) do not have the authority to own low priced stocks (often defined as stocks below 5$) and so it could continue to fall for a while. So why not go short Palm? Because no matter what the company is, when its stock gets crushed so badly, at some point there will be a rebound. So I prefer going short a stock that should get crushed, instead of one that already did!
Price Annual EPS PE_RATIO P/E Next year Return YTD SALES_GROWTH
YHOO YAHOO 15.79 0.42 38.99 21.54 -5.90 -10.37923
RIMM Research in Motion 70.55 3.35 17.5 13.75 4.46 84.13151
All regular readers here will not be surprised to see me go short Yahoo(YHOO). Last year, I did two trades on the stock (going short both times), and both ended up doing well. Among the stocks I follow, Yahoo seems to be the most overvalued right now. It trades at a P/E of 39 which is crazy for a company that is regressing right now instead of improving – its sales have actually been declining. It does have some assets worth mention but those are few and far between.
You can also take a look at the following chart published by TechCrunch about Yahoo users.. nothing more to say, case closed!