Catching a falling knife (continued) – RIMM & BP

By: ispeculatornew
Date posted: 08.24.2010 (4:00 am) | Write a Comment  (4 Comments)

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About 2 months ago, I wrote a post about two stocks that were dropping fast, Research in Motion and BP. Both had very different reasons for dropping and the question was mainly if it was a good idea to consider buying these two companies. At the time, Research in Motion (RIMM) was trading at $52.97 and British Petroleum (BP) was at $27.67 (on US markets). Almost 2 months later, we though it would be a good time to back and see how both of them have performed.

Without further wait… the results:

BP    +30,5%

RIMM    -8,9%

Obviously, they have reacted very differently. I don’t think many of you would have been stunned by the possibility that BP would gain 30% over 2 months.. it was a matter of resolving the situation in the Gulf of Mexico to start putting a stop to the oil leaks but also the cash drain. And that is now on course and BP’s stock has started its recovery as well. It did have to unload many assets which means that the stock will probably not regain it’s pre-leak level for a long time, but it is at least moving in the right direction.

On the other hand, Research in Motion is not looking good at all.Last week, Morgan Stanley updated its stock rating, recommending its clients “SELL” their holdings because of the following:

-Morgan Stanley estimates that RIMM’s smartphone market share globally will drop to 13.1% in 2012 (from 16%)
-Morgan Stanley reduced its estimated number of corporate subscribers in 2013 to 16.9M (from 21.5M)
-Reduced both short and medium term profit estimates

The fact is that Research in Motion is in trouble. I met a friend who works at a large multinational pharmaceutical company and the phones they provide employees with are the Apple Iphone. A few years ago, it was unthinkable for a multinational to not use the Blackberry but that “standard” is changing very quickly,  a very important danger for Research in Motion which depends heavily on these clients because of its struggles in the retail sector.

RIMM did announce a new upcoming phone, the Torch and it has not improved analysts so far or convinced anyone that it could stop the decline.

That being said..we are long RIMM

As we mentionned in the previous post, it is more or less impossible to time an entry into a stock that is tanking. You have to expect a possible 10-15 and maybe even 20% loss from your entry point as the momentum is always difficult to overcomee. That is very much the case for RIMM as analysts around the world continue to downgrade RIMM, telling their clients to sell, which has been triggering further downgrades, etc. It would be very easy for anyone to write a post about RIMM’s downfall right now and how the stock is going into the ground… but I don’t think it is.

The company, despite all of its shortcomings, continues to display growth and it’s P/E ratio should be considered useful. In that regard, seeing Research in Motion trade at a 9.1 ratio screams opportunity for me. The key is very limited downfall. Do you think that ratio will fall to 7 or 8? It might, but some stocks but little to no growth trade at higher P/E’s. Do you think that we will soon live in a world where all phones are either powered by Android or by Apple? I personally doubt it. They will grow much faster but that doesn’t meean that RIMM will cease to exist.

Was I a buyer at the start of 2010? No. But I am now…are you?

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4 Comments

  1. Comment by Zavi — August 24, 2010 @ 1:44 pm

    BP went so low that I should have gone long!! Neways, it’s too late. I heard about BP hiding some dead animals… did you see the video?

    As for RIMM, I’m not too sure what to do. I still think the stock has been so volatile for the past year that -8.9% is no big deal for the moment.

  2. Comment by IS — August 25, 2010 @ 3:51 am

    @Zavi – Yes, heard about it, it’s crazy but I bet lots of crazy stuff is going on right now…

    As for RIMM, yes, still keeping hope too, hope we’re right;)

  3. […] Catching a falling knife (continued) – RIMM & BP @ Intelligent Speculator […]

  4. […] Catching a falling knife (continued) – RIMM & BP @ Intelligent Speculator […]

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