Santa Berry!

Stock market watchers often talk about the "Santa Claus rally" that tends to lift stocks towards the end of the year. But in the world of mobile technology, while Google and Apple have been getting hammered for what some say are poor financial results, Research In Motion is on a tear. RIM stock is up big over the last few weeks.

The BlackBerry maker's stock bottomed out on September 24th with a price of $6.31 and today it has exploded to nearly double that value, just shy of $12.00. It's not like you had to pick the absolute bottom to make money on this stock either. The stock traded under $7 for parts of July, August and September.

So why is it up? What's going on here exactly?

It comes down to market sentiment. If we look at the actual business situation, nothing has really changed at all. The company has been showing off pre-release versions of BlackBerry 10 for a long time now. We've known it looked strong. We've known it was to be delayed until Q1 calendar 2013.

But now I guess you can say we're even more sure of the launch date. The funny thing here is that the launch will take place in February. Hopefully early February, but I think likely later February. Yes, the launch event is in January, but devices won't ship until later, and that's the real launch. That's the date that matters. That's when RIM can book revenues for the new hardware, as it leaves the shipping dock.

The stock market is a funny thing. In the long term it is a weighing machine. Results are all that matter. But in the short term it is a voting machine. And even though the business situation hasn't changed, the votes are changing. People who had written the company off are now getting a bit more optimistic.

One example is Kris Thompson from National Bank Financial, one of the many Canadian analysts following the stock. He, along with some other bears, have issued more bullish reports lately. Kris is making a short-term bullish call because it seems the launch of BB10, happening on time, could mean more devices ship in February than he's originally expected. Reminder: February is the last month of RIM's quarter and year, so that month affects Q4 results big time.

The launch of BlackBerry 10 has analysts revisiting their financial models in full force. They're bumping up ASP forecasts (average selling price = the price carriers pay for RIM hardware). This helps gross margin and profitability. They're bumping up device shipment forecasts, which translates directly to revenue. This, along with positive media reports on the quality of BlackBerry 10, is changing people's perceptions about the company and causing investors to vote more in favour of the stock.

That's what makes the stock price go up.

Momentum is a funny thing. The positive media reports on BlackBerry 10 really jump started on the day the company announced the January 30 launch event. If you look at the analyst reports, they're almost 100% reactive rather than being proactive.

This, CrackBerry nation, is why analysts get a bad rap. They get picked on for being reactive too much of the time. And it's true. They are. But there is a reason for it.

You see, analysts are no better at predicting short-term stock price movements than anyone else. That's why I feel investing should be done over the long term. But the whole business of the financial markets is designed around short term thinking. So if a stock starts moving, analysts are compelled to write reports about it, even if nothing has really changed in the business. They start writing about how perception is changing on a stock. They become market psychologists. They do it because they are expected to say something. So just understand this truth rather than worrying too much about what analysts write with respect to short term opinions on stocks.

I'm thrilled to see the stock trade higher. I still own every single share I've ever bought. I'm only actually making money on the shares I bought 12 years ago. The rest of my shares are under water. I'm tempted to buy more. But I'm holding off until I get a better handle on the company's ability to hang on to service revenues. In a meeting I attended last week (which I won't elaborate on here, sorry) I'm just not feeling confident enough on that key point.

Anyway, if you're still sitting there wondering if you should buy RIM stock, you need to keep the following points in mind:

  1. It's going to continue to be volatile. You may profit in the short term. You may not.
  2. Don't blame anyone else for your decisions. It's your money, and you are ultimately responsible for what you do with it. No whining.
  3. If the launch of BlackBerry 10 doesn't get RIM back to solid profitability, I think the stock will collapse again. 
  4. But if the business does achieve solid profitability, it will go a lot higher. A lot. As in easily over $20 and likely towards $40. It all depends on how much of a profitability recovery they achieve. So there is no rush required.