The market is finally showing some signs of life after a brutal month and a half of declines. Investors have been spooked by weak growth in the United States and the fear that Greece will default and start a domino effect that takes down the next weak link – Spain — and potentially unravels the entire experiment in European political and monetary integration.
The funny thing is that I could have just as easily written the paragraph above last June.
It is truly remarkable how little anything has changed in the past year. The U.S. housing market — the root cause of the lingering crisis — has failed to improve and prices appear to be taking another leg down. As a result, banks look as vulnerable as ever.
In the meantime, I continue to see value in this market. Investors, both retail and professional, are bearish (which is an excellent contrarian sign). And with bonds yielding practically nothing and commodity prices looking vulnerable, investors have few places to go outside of equities.
We should never take a cavalier attitude towards risk. At current prices, junk bonds, emerging market bonds and currencies, and most commodities should be avoided, as should the recent social media IPOs. We should invest only where we have that all-important margin of safety. We want companies with strong cash positions and recession-resistant demand. And where possible, we want maximum exposure to emerging market consumers rather than their cash-strapped counterparts in the United States and Europe.
With that said, let’s take a look at Research In Motion (NASDAQ: RIMM).
Last month I wrote that “Research In Motion is one of the most attractively priced stocks in the world at current valuations.” But I also wrote “You can be ‘right’ about an investment and still lose a lot of money if your timing is bad.”
Those words unfortunately proved to be prophetic; RIMM released a disappointing earnings report that sent the stock down more than 21% — and this was after the stock had already fallen by more than half in less than a year. Ouch.
The market consensus is that the BlackBerry is dead. The Android of Google (NASDAQ: GOOG) and the iPhone of Apple (NASDAQ: AAPL) killed it, and Research In Motion can now look forward to a rapid descent towards obsolescence like the erstwhile PDA leader Palm.
I disagree. The bearish consensus on RIMM would appear to me to be far too extreme, and I believe that the company is far from finished. The company is no longer the leader in the smart phone market (or at least the consumer market), and it most likely will never lead again. But there is still a lot to like here.
Please visit page 2 of “Why RIMM Will Comeback.”