Why RIM Is Still A Bargain After 91% Rally

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On November 13th, I published an article on my tech blog titled Here's Why It's Better To Buy RIMM Than AAPL Right Now.  I listed 6 reasons why RIM was a more attractive investment than Apple.

1. BB 10 is appealing and unique; iOS 6 is boring and old
2. BB 10 is on track to have more than enough apps
3. Investor sentiment is near the bottom for RIM but near the peak for Apple
4. Consumers are tired of Apple’s product cycles
5. Valuation
6. Technicals

At the time, RIMM closed on Nov. 12 at US$8.81.  Since then, the shares have rallied 34.85% (as of today's closing price of $11.88).  Meanwhile, AAPL closed at $542.83 on Nov. 12.  The shares closed at $529.82 today, which represents a fall of 2.40%.  

Despite RIMM's dramatic rally from its 52-week low of $6.22, the shares could still have much upside.

1) Technicals

RIMM continues to be in an uptrend.  Its RSI remains strong (at 69.30).  In addition, the 50 DMA is about to break above the 200 DMA in several days.  This is a bullish signal that is closely watched by traders.  When the Golden Cross occurs, more traders are likely to buy the shares.

2) Wave of Analyst Upgrades Likely

Several analysts have upgraded RIMM in the past two months, due to warm reception of BlackBerry 10 by the mainstream media, tech bloggers and carriers.  For example, analysts from Goldman Sachs, National Bank Financial and Scotiabank have upgraded the shares.  However, many analysts still have target prices of $8-$9, which is far below the current market price.  Thus, a wave of upgrades by analysts who are behind the curve would send the shares higher.

3) RIMM is Trading Far Below The Bullish Scenario

A few analysts, including Peter Misek from Jefferies and Gus Papageorgiou from Scotiabank, have outlined a bullish scenario in which RIMM could achieve EPS of over $4 in FY2014 and trade at above $40.  In my upside scenario of $3.5 in FY2014 EPS and 12X forward P/E, the shares would trade at $42.  This would represent an upside of 253.54% over today's closing price.  Thus, RIMM still has plenty of upside potential if the bullish case materializes.

U.S. Stocks Post First Positive Week of April

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 U.S. markets rose slightly on Friday, as strong corporate earnings overcame worries about the euro zone. On Friday, the S&P 500 edged up 1.61 points or 0.12% to 1,378.53. The Dow rose 65.16 points or 0.50% to 13,029.26. For the week, the S&P 500 rose 0.6%, after falling in the two previous weeks.

Strong Results From Microsoft and IBM Boost Shares

On Friday, Microsoft posted better-than-expected results. Sales rose 6%, while earnings was $5.11 billion, which was better than what the market expected. As a result, shares rose 4% when markets opened the next day. Meanwhile, IBM posted earnings of $2.78, better than the $2.65 that analysts expected. In addition, the company raised its full-year earnings outlook.

Market Breaths Sign of Relief on Spanish Bond Auctions

On Thursday, markets breathed a sign of relief when 10-year Spanish bonds were sold at a yield of 5.743% at an auction, lower than the critical level of 6%. However, new data indicated that the effects of the LTRO are beginning to weaken.

Stocks Surge on Goldman Sachs Earnings and IMF Forecast

On Tuesday, the Dow rose almost 200 points, after Goldman Sachs and Coca Cola reported better-than-expected results. Goldman Sachs reported EPS of $3.92, better than what the market expected. In addition, the IMF raised its world economic growth forecast for 2012.

Spain Concerns Cloud Markets

On Monday, yields on Spain's 10-year government bonds rose above the critical level of 6%. In addition, Spain's 5-year CDS reached a record high. It was revealed that Spain's deputy finance minister has asked the ECB to buy Spanish debt to push down the yield. As a result, the euro fell below the US$1.30 level.

Looking Ahead to Next Week

Investors will continue to focus on earnings results next week, when 180 S&P 500 companies will be reporting. With the yield of Spanish government bonds near unsustainable levels, earnings will have to continue to beat expectations in order for the market to head higher. Even with strong earnings, stocks could head lower once earnings season is over, as the situation in the euro zone becomes the center of investor focus during a season that is traditionally weak for stocks.

U.S. Stocks Record Worst Week of 2012 on Spanish Yields and China GDP

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U.S. markets fell on Friday on weaker-than-expected first quarter China GDP and the rising yield on Spanish sovereign debt. On Friday, the S&P 500 fell 17.30 points or 1.25% to 1,370.27. The Dow dropped 136.99 points or 1.05% to 12,849.59. For the week, the S&P 500 dropped 2%, while the Dow fell 1.4%. It was the worst week for the S&P 500 so far in 2012.

China GDP Disappoints

On Friday, China announced 1^st quarter GDP growth of 8.1%, which was lower than the 8.4% the market expected. It was also the slowest growth in almost 3 years. This sparked concern about China's ability to boost world economic growth, at a time when the euro zone is in a recession.

Spanish Yields Spark Euro Zone Concerns

On Friday, the yield on Spain's 10-year government bonds approached 2012 highs, while CDS on Spanish government debt rose to a record high. The yield on Spain's 10-year government bonds rose to almost 6%, while CDS on Spanish debt reached 500 basis points for the first time. As a result, Europe's three largest indices fell on Friday, with the German DAX and the French CAC each falling by about 2%.

Concerns about the euro zone debt crisis negatively affected markets for much of the week. On Thursday, Italy had a disappointing bond action. 3-year government bonds were auctioned at 3.89%, much higher than the 2.76% in March. In addition, Italy's stock market fell 5% at one point on Wednesday.

U.S. Initial Jobless Claims Disappoint

After several weeks of falling initial jobless claims numbers, the claims number on Thursday disappointed markets when it rose over the previous week. Initial jobless claims rose to 380,000, worse than the 355,000 the market expected.


Looking Ahead to Next Week

Investors will be paying close attention to the second week of earnings season next week, when 10 Dow components including Intel will be reporting earnings. In addition, banks including Citigroup, Goldman Sachs and Morgan Stanley will be reporting results. This follows the better-than-expected earnings announced by JP Morgan and Wells Fargo last week.


With two consecutive weeks of decline for U.S. markets, if earnings beat expectations next week, markets will likely rise for the week if the euro zone situation does not worsen. However, if Spanish yields continue to climb, it would neutralize gains that the market achieves next week.