It seems like we’re reaching further and further out for solid earnings trades, but that’s what happens when the doldrums hit. And we still have more than a month before Alcoa (NYSE: AA) kicks off the new season on July 11.
But the thin schedule usually contains a few gems, such as our latest play, this time on Research In Motion (NASDAQ: RIMM). The BlackBerry purveyor reports after the close on June 16, with analysts expecting $1.33 per share, a five-cent decrease from a year ago.
Though RIMM has done a decent job of beating recent earnings forecasts, the problem is the stock’s price action after the fact. To put it simply, it’s dismal. In fact, the past four quarters have produced an average drop of more than 7% in just one week. And RIMM beat the consensus estimate by an average of seven cents in those four quarters.
On the charts, RIMM is plunging. After hitting a nine-month high above 70 in February, the shares have plummeted by an astounding 45% to hit their lowest point since March 2009. With no trend lines below, the next area of support may come at the 35 level (another 10% drop), the site of the 2008 and 2009 lows.
Sentiment toward RIMM, while largely pessimistic, still contains pockets of optimism that are hard to fathom. Short interest remains unimpressive, and more analysts rate the stock a “buy” than a “sell.” That tells us there’s still room for more pessimism, which could wash over the shares after earnings.
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RIMM just can’t seem to get out of its own way. The company hasn’t been rolling out new smart phone products to compete with the dominance of Apple (NASDAQ: AAPL) and the Droids of Google (NASDAQ: GOOG). Its smart phone operating system now lags behind those of Apple and Google in terms of market share. The BlackBerry PlayBook tablet is trailing those from AAPL, Samsung, and Amazon (NASDAQ: AMZN). Analysts are cutting price targets. And the company is being criticized for its dual-CEO structure. That’s not the stuff of turnarounds.
With plenty working against RIMM, a hardy bull could argue that the shares are oversold. That may be, but oversold can become more oversold. That’s what we’re banking on. Buy the RIMM July 40 Put for $3.50 or less.
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