Motley Fool says... Worst Stock for 2008: Research in Motion

RIM: Worst Stock in 2008?
By Kevin Michaluk on 15 Jan 2008 04:37 pm EST
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Ouch. According to Motley Fool , RIM is in for a tough time, at least as far as their stock price is concerned, as they have named Research in Motion the Worst Stock of 2008. Motley Fool is citing Changing Consumer Tastes, Stretched Valuation and General Economic Woes as challenges that will certainly bring RIM's valuation down this year. The question posed by MF isn't whether the valuation will drop, but more so by how much? (full story and my counter argument after the jump!)

Under the "Tastes Change" challenge, the author thinks RIM is following in Motorola and Palm's footsteps - once the maker of the hottest phones, today that's almost a "laughable" thought. With these companies out of the way the competition is now taking aim at RIM, and there is a lot of competition - with the iPhone leading the way followed by decent me-too phones (i.e. Verizon/LG Voyager) and emerging platforms like Google Android (which will soon lower the cost of entry and allow more competition to enter the mix) following suit . To keep up with the competition, RIM will undoubtedly have to spend a ton on R&D to keep innovating and getting into "Product Wars" can be costly and drag down a stock price.

Sum it all up and MF questions "does Research in Motion really deserve a price-to-earnings ratio of 50? Such a froth multiple might make sense for a rapidly growing company with nothing but open space ahead of it, but nor for the leader in a maturing, highly competitive industry."

My Argument 

Now, I'm not one to give to stock advice (and if I do you probably shouldn't take it!), and the author does make some valid points (i.e. Product Wars can get pricey), but I can think of a few compelling counter arguments as to why I believe RIM's stock price will hold strong in 2008:

1. RIM is diversified: The Motley Fool forgot about RIM's enterprise market, where RIM remains the undisputed king. Yes, there will be a battle waged between Windows Mobile and BlackBerry devices, but it hasn't happened yet. In the meantime, RIM is expanding into new markets every month and strengthening its grip on the enterprise world. Enterprise is RIM's turkey...and the Consumer Market is the Gravy. A lot of RIM's value is still coming from the enterprise market. Remember the outage and the way the world reacted? That's when everybody realized the world runs on BlackBerrys and the price began to climb. Nothing has changed there. That outage just made the consumer world more aware that BlackBerrys rock.

2. Consumer market is growing: I would disagree with the author that the smartphone market is mature. Remember that statistic from earlier in 2007 that smartphone penetration in the United States will grow from 10 Million to 70 Million+ by 2010? Doesn't seem very mature to me. Yes, the definition of smartphone is a bit blurry these days (with some feature phones becoming a lot smarter), but the fact remains more people are buying smartphones than ever before, and the market is growing. RIM isn't trying to keep up with the number of devices it sold the previous quarter, it's in a position of selling more devices each quarter than it ever did before as it takes big bites out of the growth in the market.

3. The iPhone is on ONE carrier in North America: Sure the iPhone is a cool consumer gadget. But as of right now, it's still only on one carrier in North America - AT&T (though I am hearing rumors that its coming to Canada may be announced at Macworld today). And while AT&T is a formidable company and is snapping up a lot of subscribers thanks to the iPhone, coverage is still king and AT&T coverage is not so good everywhere (it's still a phone - you have to get reception), and unlike Apple, RIM has a selection of phones on every carrier. And even the CDMA carriers, who are typically last to sit at the table for dinner, now have the BlackBerry Pearl 8130 in North America - and they are selling them like CRAZY.

4. Don't underestimate the Crack: It's called a CrackBerry for reason. The best way to sell a BlackBerry is to let a person use one for a week. We've hit a point where everybody knows at least one (or two or three or ten) people who use a BlackBerry. Odds are they are addicted to it and love it. When the berry-less people's contracts expire, a new BlackBerry will be on the shortlist of phones to upgrade to.

Buy, Sell or Hold? You can say I'm thinking with my heart and not with my head, or call me biased, but push come to shove I'm not selling my RIM stock anytime soon. Own any RIM stock? Tell us your thoughts?!

Read Motley Fool Article  >>  

Topics: Editorial

Reader comments

Motley Fool says... Worst Stock for 2008: Research in Motion

7 Comments

There is no way that the stock of Blackberry will be that bad in 08! I sell BB every day, and as long as the person selling the phone takes 10 minutes to show the customer some of the basic functionality of the phone, they DO NOT GET RETURNED. They have much better battery life than anything windows mobile, and with the US carriers bringing down the prices of their BB packages I've seen more users switch to them. Plus if you've ever seen the data on how they almost double the number of BB subscribers every year, how could they be that bad of a stock to own. Furthermore, as the youth that grew up with cell phones continues to age, they will be more in tune PDAs as they will need them for college and in their careers. Remind me never to take advice from Motley Fool!

Motley Fool always screws up about half their predictions a year, when it comes to stock. This is most likely one of their screw ups for this year. They have no idea what they are talking about most of the time. You could get better stock predictions by rolling the dice. Even if the economy does make a downturn, or even worse the horrible R word, I just don't see RIM suffering from this. They have in fact gotten more customers and not just business execs interested in their product. In terms of cost of ownership, and ability to function, all the Blackberry plans for data are much cheaper than the equivalent plans for Palm or Windows Mobile, and as far I am concerned, offer more. I cannot see RIM taking a dump in the new year. I do think Palm needs to watch their backs, and their Palm OS products seem to be making a downturn, and we aren't seeing huge updates. Their only saving grace could be windows mobile products. I think that RIM devices will continue to be popular throughout 2008, as with advancements that I think keep it level if not ahead of the iphone. Windows Mobile and Palm OS are both way behind in this.

Unsubstantiated rumors and claims meant for the sole purpose of driving down a stock price.

Market manipulation at its worst (or finest, depending on which side you're on).

Never cared or had any interest in stocks and I have no idea who this Motley Fool is, but there is no way I would even consider the advice from a person with the last name of Fool, hehe

This isn't about whether the BlackBerry is a good product. This is about valuation. You're right, there was a run-up on the market after the outage. Was that based on financial sheets? No, it was based on emotion.

The stockmarket is emotional short-term, but long-term it follows earnings sheets. The most damning part of the Fool's coverage is this: "Does Research in Motion really deserve a price-to-earnings ratio of 50?"

No company deserves it, which is why RIM may see a dip in 2008. The stock is due for a correction in price.

Don't underestimate the Crack: It's called a CrackBerry for reason. The best way to sell a BlackBerry is to let a person use one for a week. We've hit a point where everybody knows at least one (or two or three or ten) people who use a BlackBerry. Odds are they are addicted to it and love it. When the berry-less people's contracts expire, a new BlackBerry will be on the shortlist of phones to upgrade to.

This is 100% true. My older brother got wind of me using a BB and after 20 minutes on the phone he told me that he has 9 months left on his current contract and he wants a BB real bad. Not to metion a lot of his coworkers have BB's