Citigroup upgrades RIM to Buy; shares rise 4.2%

Even Jim Suva has turned bullish on RIM.  The Citigroup analyst had been once of the most bearish analysts covering the stock.  He has had a Sell rating on RIM since November 2009.  Yesterday, he upgraded RIM from Sell to Buy, and increased his target price from US$55 to $80.  As a result, the shares surged 4.2% in Toronto to close at C$67.25.

He cited Nokia's transition to WP 7, during which time carriers will be shifting their promotions away from the Finnish phonemaker to companies such as RIM.  This is the same reason that I cited for RIM to head higher in a February 8 article.  Juva dramatically increased his FY 2012 EPS estimate from $5.62 to $6.74.  

Analysts turning bullish on RIM

Many other analysts have recently also recently turned more bullish on RIM.  Morgan Stanley analyst Ehud Gelbrum, another one of the most bearish analysts, upgraded RIM from Underweight to Equal Weight on Feb. 4, while Credit Suisse analyst Kulbinder Garcha maintained a US$85 target price on Feb. 3.

RIMM is still a bargain

RIM was up another 2.1% today to close at C$68.66.  Despite the rally in recent days, RIM is still trading at less at 10.5 times forward earnings.  With continued growth of 20% plus in revenue and profits, the stock in a clear bargain compared to its peers.

I expect the stock to continue heading higher on analyst upgrades, and as we approach the launch of the PlayBook in March.  I expect the stock to reach C$75 within 1 month, and C$90 within the next 12 months.

RIM Rises 4.2% On Citigroup Upgrade

Shares of RIM rose 4.2% today to close at C$67.25 in Toronto.  The sharp rise came after Citigroup analyst Jim Suva upgraded the shares from to Buy from Sell.  He cited Nokia's transition period to using the Windows Phone 7 operating system, during which time carriers will shift their advertising to companies such as RIM.  RIM can gain market share particularly in Europe.

On Friday, I talked about how Nokia's transition period can benefit RIM:  http://www.youtube.com/watch?v=TQew-c8bu5g

Markets rise on resolution of crisis in Egypt

US markets rose on Friday after Egyptian President Hosni Mubarak stepped down. The S&P 500 rose 7.28 points or 0.55% to 1,329.15, while the Dow gained 43.97 points or 0.36% to 12,273.26. For the week, the S&P 500 was up 1.4%, while the Dow gained 1.5%. 

 

Investors were relieved to see a resolution in the crisis in Egypt. The president also stepped down before things deteriorated further in a nation with the Suez Canal and oil pipelines.

Oil and gold weaken

With a resolution of the situation in Egypt, the price of oil and gold fell. NYMEX crude fell $1.15 or 1.33% on Friday to $85.58, its lowest level since November 30^th. Meanwhile, gold futures fell $2.10 or 0.2% to $1,360.4/ounce.

China raises interest rates again

On Tuesday, China raised interest rates once again to cool the country's inflation. It was the third interest rate hike since tightening measures began in recent months. The 1-year savings rate was hiked by 25 bp to 3%, while the lending rate rose 25 bp to 6.06%.

Germany and France not getting support

Germany and France are pushing for other euro zone nations to adopt their proposed competitiveness pact. The agreement includes indexing wages and guarantees on debt limits. Germany has agreed to boost the EFSF (European Financial Stability Fund) if the other euro zone members accept the deal. However, other nations are opposing the changes that the agreement would bring.

Outlook for this week

With a 27% rally in the S&P 500 since late August, it appears that markets are running out of good news. The interest rate hike in China on Tuesday is the perfect example of the strong inflation occurring in emerging markets. Governments are trying desperately to clamp down on inflation, and the result will weaken economic growth. While the euro zone has been quiet in recent weeks, bad news could emerge from the region at any time. Thus, investors can expect markets to move sideways and lower this week.

Nokia's troubles benefit RIMM

I wrote in a Jan. 16 article that RIMM's outlook in 2011 is very bright.  Indeed, two very positive analyst reports emerged last week.  On Thursday, Credit Suisse analyst Kulbinder Garcha wrote that troubles at Nokia could result in RIMM shipping 5 million additional smartphones each in 2011 and 2012.  Garcha estimated FY 2012 EPS of US$8.10, and maintained his Outperform rating and $85 target price.

Meanwhile, On Friday, Morgan Stanley analyst Ehud Gelblum upgraded RIMM from Underweight to Equal Weight.  He sees the PlayBook adding $0.40 to EPS even with modest sales estimates of 2.1 million this year and 5.6 million next year.  Gelblum sees RIMM benefiting from the Dalvik virtual machine.  He also raised his device shipment, EPS and revenue estimates.  FY 2012 EPS was raised from $6.29 to $7.23.

Nokia's troubles benefit RIMM

Nokia has been losing market share rapidly.  Despite remaining as the number 1 smartphone maker in the world, its market share has declined from 38% in Q4 2009 to 28% in Q4 2010 according to IDC.  As a result, the company is expected to announce this Friday that it will adopt either Android or WP 7.

Nokia is RIMM's biggest competitior in international markets in Europe and Asia.  Thus, with Nokia having to spend 12 to 18 moves to produce phones on Android or WP 7, RIMM would benefit by taking taking market share from Nokia.

With today's closing price of US$63.60, Garcha's FY 2012 EPS of $8.10 means that RIMM is currently trading at 7.85 times forward earnings.  At a more reasonable 14 times multiple, RIMM's price would be at $113.4.  RIMM shares are trading at 78.3% below that price, making the shares a clear bargain.

US markets post strong gains despite Egypt

US markets rallied this week, despite the continued crisis in Egypt. On Friday, the S&P 500 rose 3.77 points or 0.29% to 1,310.87, while the Dow gained 29.89 points or 0.25% to 12,092.15. For the week, the S&P 500 gained 2.7%, while the Dow ended up 2.3%. The S&P 500 and Dow reached 2.5-year-highs, while the Dow recorded a gain of 2.72% for January.

The rally in US markets was mostly due to positive US economic data. On Tuesday, the ISM reported that US manufacturing expanded in January at the fastest rate in 7 years. In addition, a rise in non-manufacturing activity and better-than-expected retail data were reported this week.

Investor sentiment also received a boost from Ben Bernanke this week, who cited gains in household spending and improved confidence. Positive earnings also provided a lift to markets, with companies like JDS Uniphase posting stellar results.

Employment data mixed

The US gained only 36,000 jobs in January, far fewer than expected. However, the unemployment rate fell to 9% from December's 9.4%, and was lower than the 9.5% that economists expected. The private sector added only 50,000 jobs, fewer than the 145,000 expected. Meanwhile, the manufacturing sector added 49,000 jobs, more than the 10,000 expected. Investors were unsure about what to make of the mixed data.

Copper gains 4.7%

The price of copper futures rose 0.8% to US$4.5795/pound on Friday. For the week, the price of copper was up 4.7% on a recovering global economy.

Oil rises on Egypt

Brent crude rose to above US$101/barrel on Monday for the first time since 2008. On Friday, it settled below $90 on news of possible stability in Egypt.

Gold gains

The price of gold weakened on Friday, due to a stronger US dollar and news from Egypt. For the week, gold posted its first weekly gain in 2011.

Outlook for next week

US markets posted its best week in 9 weeks despite the turmoil in Egypt. Technical analysts also see little resistance for markets to head higher. However, with US markets in overbought territory, and the turmoil in Egypt continuing, the downside potential is greater than upside potential in the coming week. In addition, energy, mining and agriculture sectors are in overbought territory, posing a large potential for a short-term pullback.