Monday, July 25, 2011

Why RIM shares are about to receive a big boost

When RIM reported its first quarter earnings on June 16, its shares plummeted.  Since then, its shares have been trading in a range between C$24.31-$29.67.  Today, it closed at C$25.19, after providing details about its previously-announced plan to reduce headcount.

Commentary about the company has been very negative, particularly in the U.S.  This is partly why the shares are trading at an incredibly discounted level of 4.22 trailing P/E.  Despite the negative sentiment, the shares are going to receive a big boost, as early as possibly tomorrow.

As Co-CEO Mike Lazaridis stated at the annual shareholders' meeting on July 12, RIM is launching 7 new devices in the coming months.  Out of these 7 new devices, only 1 has been announced, which is the Bold 9900/9930 (announced on May 3 during BlackBerry World).  While BlackBerry supporters who follow the company closely may know about most of the other 6 devices (Torch 9810, Torch 9850/9860, Curve 9350/9360, Touch Curve and Bold 9790) most investors have no idea about any of the un-announced devices.  Thus, RIM shares will receive a significant boost when these devices are announced.  This might happen as occur as tomorrow, as RIM's official twitter account has hinted that an announcement may occur tomorrow.

RIM shares in the past have received a significant boost in the run-up to the announcement of new devices.  For example, last year, before the Torch was announced on August 3, RIM shares rose from C$50.06 on July 6 to $60.00 on August 3, a gain of 19.86% in less than 1 month.  Thus, investors should expect a similar boost in the coming days.

In fact, one could argue that the boost RIM shares will receive this time will be stronger than the one from the Torch last year.  This is because RIM is launching 7 new devices (versus just 1 last time) and sentiment is extremely bearish (thus the 4.22 trailing P/E).  In addition, RIM is launching its new devices simultaneously at more carriers this time.  For example, at the AGM on July 12, Mike Lazaridis stated that RIM was currently in 491 certification programs with 191 carriers around the world, in what he said will be the "largest global launch of BlackBerry smartphones".

The first bit of good news from RIM should be a release date for the Bold 9900/9930, which leaks from Bell and Sprint have shown to be August 21.  The second bit of news from RIM should be an announcement of the Torch 9850/9860, which leaks have shown has a release date of August 27.   Thus, I expect RIM to rally at least 20% in the next 2-3 months on the new devices.  In fact, as RIM's twitter account has hinted, this may begin to happen as early as tomorrow. 

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