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RIM a “buy” if you can hold your breath and count to (BB)10

Research In Motion Ltd. has been down so long, anything looks like up. As its new smartphones entered testing last week, the company's stock popped to over $9 from around $7.50. Skeptics figured it was nothing more than a dead-cat bounce from a company stuck in a downward spiral.

The doubters might be in for a surprise. RIM could deliver big returns for investors willing to make a contrarian bet on the devastated ex-powerhouse.

That's the take of Byron Capital Markets analyst Tom Astle. It's a daring call, so first, a word about Mr. Astle's background: The veteran Toronto-based tech analyst hasn't officially covered RIM for about a decade. He's been bearish on RIM for about three years, but not in print – he didn't pick up coverage until Monday (with a "buy" rating and a $12 target) because he didn't like RIM's chances against Apple's iPhone. He's also a dedicated iPhone user.

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In short, he's like many people who've turned away from RIM. But Mr. Astle is now intrigued by what he sees – with a few important caveats.

There is a great deal of risk in any bet on a RIM comeback, he acknowledges. Turnarounds are tough, particularly in technology, and "really, really hard to call." A couple of bad quarters likely lay ahead, and cash will continue to head out the door. RIM's rivals are giants and its ecosystem of apps pale in comparison to what competitors offer. If RIM's delayed BB10 operating system is a dud, all bets are off.

But RIM could be "an outstanding investment opportunity" for the following reasons, he says:

  • Eighty million BlackBerry users are keen for a new phone. If RIM can stabilize its user base by selling them phones equipped with the new BB10 and maintain a 5-per-cent market share, it could earn 20 cents per share next year. Analysts on average are calling for a 50-cent-a-share loss.
  • BB10 might actually impress. Its messaging hub looks to be “the best available on all platforms” and might draw back customers who preferred the BlackBerry as a productivity and communications tool, says Mr. Astle. It’s fast, the browser is decent (finally) and even the camera is “competitive,” he says.
  • Carriers have good relationships with RIM and don’t like Apple, which acts like the 800-lb gorilla that it is. All they’ve been missing is a competitive handset from RIM. They might now have one.
  • The stock is so weighed down by negative sentiment that any signs of stabilization will bring shareholders back. RIM has cash, valuable wireless patents and undervalued subscribers. It also has 11 “sell” ratings and “four” buys from analysts, compared to 50 “buys” on Apple and no “sells”, Mr. Astle says. The New York Times recently reported people are “ashamed” of their Blackberrys. RIM, in short, benefits from low expectations.

Is betting on RIM a sure thing? Absolutely not. But improving sentiment could bump up the stock. As Mr. Astle puts it, "We do think the risk to being underweight [RIM stock] is increasing."

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About the Author

Sean Silcoff joined The Globe and Mail in January, 2012, following an 18-year-career in journalism and communications. He previously worked as a columnist and Montreal correspondent for the National Post and as a staff writer at Canadian Business Magazine, where he was project co-ordinator of the magazine's inaugural Rich 100 list. More

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