Friday, December 2, 2011

Why I Am Staying (or rather, stayed) Away From RIMM.

Below is a post that I originally wrote about Research In Motion on 6/21/2011. At the time, it seemed as if it was a favorite contrarian stock, but, for whatever reason, I never published the piece. As it has turned out, I am fortunate to have stayed away from the Canadian cell phone maker. The reasons for my publishing it now? Well, I was going through a bunch of what I thought were 1/2 written posts and found that it wasn't really 1/2 written- I probably had more that I was going to add, but never got around to it.

Still, time will tell how the stock preforms, but again, I wouldn't want to be an owner of the company, especially since it seems that they are more or less conceding that their phones don'e have a future and that they need to gat in the app business. I stick by most everything I said in the old post. Not that I am declaring victory here, I am not... Frankly, I don't wish for the company to dwindle away and eventually be sold (a la' PALM), but, that certainly seems to be the direction it is heading.

From where I sit, I just can't wrap my head around paying almost $9 BILLION for a company that has a dying hardware business and is attempting to enter the app business.Hell, it seems far fetched that a business that is actually good at making apps would be considered a value at $9 billion. You wouldn't have to pay that much more, and you could buy something like Adobe, which makes a product that everybody needs, rather, than needs to be sold on; as RIMM will have the upward battle of doing.

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Yes, Research In Motion is trading at what appears to be cheap 4.whatever times earnings... Yes, they are potentially in play for a take over at a 50% premium to where shares are trading... Yes, they have a FCF yield of ~36%...

And here I am, taking a pass at them; despite their numbers looking great. Basically, I am spooked by a past investment debacle.

This debacle that I mention goes back to a failed investment in Motorola that I made when Carl Icahn was attempting to overthrow management... Similarly, we were dealing with a company that was reliant on an outdated product; compare the Razr and the Blackberry.

I am sure that people will think I am crazy, but, I am staying out of this one... I am not saying that the stock won't do well- in fact, I think it probably will. I just wouldn't be able to sleep very well at night if I was an owner of the company.

Whenever revenue degrades in such a way that it looks like RIMM's might in the near future, I have no way of being able to figure out how much they are going to earn in the coming years... It is simply out of my circle of competence. I'm sorry, but, selling cell phones that no one wants (or rather, are a few apps away from being destroyed) is a lot harder for me to wrap my head around than something tangible...

As a side/ending note, the MOT annual meeting where Carl Icahn tried to get a few board sears was the first that I ever went to. It set an unfortunately high precedent for absurdity that the love child of the Gilbert Brothers and Evelyn Davis couldn't spawn... Don't worry, I will eventually get around to writing a summary of the meeting.

Disclosure/Disclaimer: I have no position of any sort (long, short, option, or otherwise) of the securities mentioned, but that could change at any point. This is not advice of any kind. Always do a ton of your own research in regards to anything that I say, do, write, or so much as even think about.

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