Research In Motion a Short Sale Candidate

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This year the number of smartphone shipments is expected to soar from 600 million to nearly one billion, and there will be a continued surge in tablet devices. For instance, Apple (NASDAQ: AAPL) has already sold 14.8 million iPads.

Despite the growth, the mobile market can be brutal. A stark example is Nokia (NYSE: NOK). Because of a sluggish organization and lack of ingenuity, the company has seen its stock price collapse from $66 in late 2007 to about $9.00 today.

Another mobile player that is vulnerable is Research In Motion (NASDAQ: RIMM), creator of the BlackBerry devices. The stock may not plunge as much as Nokia’s but it still looks like an attractive short.

Let’s take a look:

Business: RIM has a dominant position in the business market. The BlackBerry integrates seamlessly and securely within corporate networks. Yet it is expensive to purchase and install the server software. In addition, maintenance is not cheap and it is not easy to develop apps for the BlackBerry.

The iPad and even the Android are poised to take share away from RIM. Consider that Best Buy (NYSE: BBY) will be giving all its sales associates an iPad. RIM’s fairly weak product line may mean that its top distribution partners, including Verizon (NYSE: VZ), will be more inclined to push other mobile devices.

Financials: In its latest quarter, RIM reported that smartphone shipments increased over 40% to 14.2 million and revenues were up 40% to $5.5 billion. Earnings rose 58% to $1.74 per share.

But there are signs that the momentum may slow down. Marvell Technology (NASDAQ: MRVL), which makes semiconductors for RIM devices, recently reported soft business and that it may continue for awhile. This could be a signal that RIM may be seeing erosion in its revenue.

And RIM jarred markets with its announcement that its top marketing executive will be leaving the company, a bit of bad timing as the company will soon launch its PlayBook product, a rival to the iPad.

Chart: Since September, RIM’s stock has had a strong rally, going from $44 to $66.50. Then again, RIM had a solid quarter and there was also a powerful tech rally.

All in all, the chart looks good, with a nice breakout. What’s more, the 50-day moving average is well-above the 200-day moving average. In other words, there is lots of momentum in the stock.

Yet if the company posts top-line weakness — which seems reasonable — there could be a sharp reversal — making RIM an interesting short candidate.

Note:  To learn more about how to short stocks using this three-pronged approach, you can read my new book “All About Short Selling”.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2011/03/research-in-motion-a-short-sale-candidate-aapl-rimm-vz/.

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