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Even with a New CEO, RIM Can't Touch Apple or Google

January 26, 2012 | About:
Research In Motion (RIMM) has shaken the markets up. It's sudden promotion of Thorsten Heins from COO to CEO has analysts shaking their heads. The company has been struggling with competitors like Apple (AAPL) and Google (GOOG) and investors have been asking for change. The move to replace co-CEOs Jim Balsillie and Mike Lazaridis with an unknown insider is extreme in some views.

Research In Motion is not expected to rebound because of this change of leadership. The company still faces the same challenges as before. Other devices, such as the Apple's iPhone and the Android smartphones are taking market share in areas that were previously Blackberry territory. Forbes reported last fall that iPhone use had surpassed Blackberry among business users.

Fundamentally, the stock is undervalued. The stock has support; institutional and inside ownership account for about 72% of the company. Research In Motion is currently trading around $16 with a P/E of 3.28. This number is not accounting for the solid results Research In Motion produces. The company has cash flow, positive earnings, good expectations for the coming year and no debt. The only thing lacking is a dividend, which is a crucial feature of strong stocks this year.

Research In Motion announced its fiscal 2012 earnings in December of 2011. In the statement, then-CEO J. Balsillie apologized to investors. He cited trying times and a transitional shift in the companies organization for their lack of ability to reach goals. In a move to build confidence in himself and co-CEO Mike Lazaridis the pair lowered their salaries to $1 per year each. The two CEOs are the largest share holders in the company. The company has remained profitable during this transition and has a pipeline of new products scheduled to be released in 2012. Blackberry subscription are up over 30% from the previous year with strong presence overseas. It will be interesting to see how the Euro-zone fall out impacts upcoming earnings. Revenue in the quarter was up 24% from the previous quarter on a big increase of shipments of smart phones and new subscriptions for Blackberry services.

The short-term, one-year, chart shows a bear market that may have hit a bottom. The stock has made an orderly retreat from highs of $70, a disappointing 77% decline in shareholder value. Research In Motion bounced off the $12 level with some high volume in December of 2011. Bearish momentum had been in decline and was divergent from the stock price. Momentum has turned bullish, despite the confusion over Mr. Heins' promotion. On the long term charts Research In Motion looks like its at the bottom of its five-year range. The stock has been trading sideways for years inside a large range. The indicators are consistent with a base forming between $16 and $25. Research In Motion's continued performance and positive surprises in 2012 could send this stock back up to the top of the range, near $125.

Apple is one of Research In Motion's closest rivals. Apple's iPhone proves to be a continouos challenge to Research In Motion and its Blackberry device. Apple is scheduled to release fiscal 2012 first quarter results tomorrow after the bell. Third-quarter results were good, with an increase in sales and profit over 50%. International sales was the highlight of the report. Apple is fairly valued with a P/E around 15. The stock currently trades around $425, more than 300% higher than its lows experienced in 2009. The company has good institutional ownership, close to 70%, and no debt.

Apple has been trending upward since the market lows in 2009. It has managed to make its line of products household names. Strong sales growth has driven this stock to its peak and now it is set for a correction. It has been trending strongly for over three years without any real pause. The technical indicators are in decline. Divergences in price are showing weakness and lack of conviction at these high prices. I expect Apple's results to be good but not impressive. This stock will take a break and consolidate between $300 and $400.

Android creator Google is also giving Research In Motion some trouble. The operating system is a Linux-based open source system compatible with a number of devices. The system provides a number of advantages over the Blackberry and iPhone, but also has some drawbacks. The Android system is only one of Google's revenue sources. Investing in Google gives broader exposure than Research In Motion or even Apple. The search and advertising giant is embedded in every niche of the web world wide.

Google is the highest-valued of these stocks, it is currently trading around $580, roughly 18 times earnings. It also has the highest institutional/insider ownership, over 80%. Earnings, while good, have been disappointing and are not really expected to change much in 2012. The most recent report, released last week, sent the company's shares tumbling by 9%. The stock has been trading in a range for over five years. I think Google is on the way down toward $475. The market for this stock is choppy and too vulnerable to knee-jerk reaction. There are at least 15 gaps in price in the past 12 months alone. I think Google is a stock for rock star investors who want to flaunt it. There is too much risk for the price, expectations are only okay and it doesn't pay a dividend.
  • CEO Buys, CFO Buys: Stocks that are bought by their CEO/CFOs.
  • Insider Cluster Buys: Stocks that multiple company officers and directors have bought.
  • Double Buys:: Companies that both Gurus and Insiders are buying
  • Triple Buys: Companies that both Gurus and Insiders are buying, and Company is buying back.

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About the author:

Doug Ehrman
Buy low and sell high is easier in theory than in practice– and that’s where we come in.

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