Why It’s Better To Buy RIMM Than AAPL Right Now


(Last updated Nov. 21, 2012)

RIMM (blue line) is up 36.38% from Sept 21 to Nov. 12; AAPL (red) is down 23.01% over the same period.

Since RIM announced on October 31st that BlackBerry 10 has entered carrier trials at 50 carriers, its shares rallied 20.82% in 4 trading days. In that time, its shares broke above the US$8 and $9 levels. Since the shares hit its 52-week low of US$6.22 on Sept 24th, they have rallied a whooping 45.82% as of the intra-day high on Nov. 12.

Meanwhile, Apple shares have gone in the opposite direction. Since hitting its 52-week high of US$705.07 on Sept. 21st, they have fallen 23.01% to $542.83 (as of market close on Nov. 12). The shares are in the midst of an ugly downtrend.

Below are 6 reasons why shares of RIMM have far more upside than AAPL right now.

1) BB 10 Is Appealing and Unique; iOS 6 Is Boring and Old

Peak and Flow being shown at BB 10 Jam in Orlando.

Bloggers, developers and even financial analysts have nothing but praise for the QNX-powered BB 10 after going hands-on with it. First of all, it is different than what is offered by Apple and Android. It takes the user experience that iOS introduced in 2007, and takes it to the next level with Flow and Peek. The user experience is no longer the opening-and-closing of apps that smartphone users experience today.

The BlackBerry Hub enforces RIM’s traditional strength in messaging, by allowing users to receive and send all sorts of messages from just one app (email, BBM, text, Facebook, LinkedIn and Twitter messages).

TimeShift Wedding Photo

BB 10′s TimeShift Camera has the “cool factor” that can attract consumers.

The dynamic lock-screen is beautiful and convenient.  Active Frames (like Live Tiles on WP 8) are visually-stunning and provide useful information. The virtual keyboard’s predictive-text capabilities have saved me time by allowing me to swipe up to use a suggested word instead of typing out each letter. The time-shifting camera has the sex appeal that can attract the average consumer. The browser has the most powerful HTML5 capabilities among all mobile browsers on the market, with a HTML5 Test score of 484. For enterprise users, BlackBerry Balance allows for a convenient and intuitive separation of personal and corporate information.RIM is also keeping many features hidden for now, including BB 10′s native picture filters and a video-editing app. Any positive surprises come launch time will be positive for its shares.

On the other hand, iOS 6 appears stale in comparison. Years of incremental changes since 2007 has left it with rows of boring icons. As a 5-year-old OS, it looks dated next to BB 10.

2) BB 10 Is On Track To Have More Than Enough Apps

A main concern among the general public about BB 10 is the app ecosystem. However, it appears BlackBerry has done everything possible to alleviate the concern. It has provided incredible development tools to developers, including the award-winning Momentics IDE and Cascades UI Framework. The Developer Relations Team has hosted BlackBerry Jam sessions in over 30 cities around the world, seeding over 5,000 Dev Alpha and Dev Alpha B devices to developers. There are also great initiatives like the 10K Developer Commitment (a guarantee for you to earn $10,000 on your app if you can earn the first $1,000 on your own) and the BlackBerry Got Game Port-a-Thon.

Source: VisionMobile

The average BlackBerry developer makes more money than on Android and iOS. This is perhaps the most powerful quality that is attracting developers to BB 10. A perfect example is the developer who ported the game Pop Corny from iOS to BlackBerry. He was so impressed with the development tools (and the revenue he got) that he made his next game (called FlyCraft) a PlayBook-exclusive.

BlackBerry has even started helping developers port their PlayBook apps to BB 10.  With 27,400 PlayBook apps available as of May 1, 2012 (that number should be far higher now) there should be an abundant quantity of apps when BB 10 launches.  Thorsten Heins has even projected that there will be 100,000 BB 10 apps available when the first device launches.

3) Investor Sentiment Is Near Bottom for RIM But Near Peak for Apple

It is clear that sentiment on RIMM hit rock-bottom on Sept. 24, when the shares hit a 52-week low of $6.22. Since then, positive news have improved sentiment, but it is still quite bearish overall. Much of the positive news have not been reported by tech blogs and the media. Even when positive news are reported, they are often written with a significant amount of skepticism.  Thus, the shares have significant upside potential, as sentiment continues to improve.

In recent days, CEO Thorsten Heins, CMO Frank Boulben and COO Kristian Tear have conducted several interviews with media outlets including Reuters.  The exposure has helped lift RIMM.  From now to Jan. 30, we can expect a large amount of media exposure for RIM, as executives seek to increase awareness of BB 10.  This is very likely to improve sentiment and boost the share price.

As of the most recently reported quarter on August 22, 2012
Source: Factset

The fact that Apple is the #1 held stock in the world by institutional investors should be a warning. With investment managers nearing the maximum limit in terms of how much AAPL they would hold, they are unlikely to buy more AAPL shares. Thus, this removes a potential catalyst, in which institutional buying would lift AAPL. On the other hand, once AAPL hits some weakness (such as currently) investment managers might sell. This could have a significantly negative impact on the shares, as investment funds rush to sell their AAPL holdings before other asset managers.  In fact, this could be part of the reason for AAPL’s recent 20%+ fall from its peak.

4) Consumers Are Tired of Apple’s Product Cycles

Jimmy Kimmel joked on his show that Apple users are “suckers”.

I believe customer sentiment around Apple has recently shifted. The Maps app fiasco has shown customers that Apple cares more about its corporate priorities than user experience. Meanwhile, the new Lightning dock shows that Apple will go to any lengths to gouge its customers. The 4th Generation iPad (launched only 7 months after the iPad 3) has shown customers that Apple is willing to shorten its product cycles to force customers to upgrade to its latest product. The result is that people are now leaving Apple, with Ed Conway’s letter to Tim Cook being the perfect example.

Surveys have shown that smartphone users have little loyalty. They simply pursue the newest and flashiest product. Thus, BB 10 should be able to capture many users who leave iOS.

5) Valuation

RIM is currently trading below its TBV (tangible book value) of US$12. Incidentally, $12 is the target price that bullish analysts currently have for RIM. However, TBV underestimates RIM’s value, since it excludes intangibles such as patents. As we have seen with Apple’s $1.05 billion lawsuit with Samsung, patents in the mobile industry are very valuable. As of September 1st, RIM valued its patent portfolio at $3.372 billion. Adding in the patent value of $6.435 per share, RIM’s BV (book value) is $18.44. I believe that is the minimum price RIMM should trade at, once sentiment normalizes.

In terms of upside potential, Scotia Capital recently published an upside scenario in FY 2014 of 56.6 million units in shipments, ASP of $390 and EPS of $4.39. Applying a P/E of 10x results in a share price of $43.90.

As a comparison, AAPL is trading at 4.31 times its book value of $125.86.

6) Technicals

RIMM is in a strong uptrend.

RIMM currently has a lot of upward momentum, ever since it broke out of its downtrend.  A perfect example is today, Nov. 21.  This morning, there was news that NTSB (National Transportation Safety Board) is dropping the BlackBerry for the iPhone.  Normally, this sort of news would send RIMM down about 2% for the day.  However, the shares were actually up 6% at $10.30 (as of 2:36pm).  The fact that the shares can continue to rally in the midst of bad news show that there is plenty of momentum.

AAPL is in an ugly downtrend.

On the other hand, AAPL appears to be stuck in an ugly downtrend.  There are signs of a break-out after the shares dropped to $505.75 on Nov. 16, but it is too early to tell whether or not it is simply a dead-cat bounce.

Conclusion:

With RIM having announced on Nov. 12 that the BB 10 launch event will occur on Jan. 30, this removes a large amount of uncertainty.  In addition, assuming that RIM ships the first BB 10 devices 1-2 weeks after the announcement, BB 10 shipment will benefit earnings in the quarter ending March 2.  Thus, the number of bad RIM earnings ahead would not be the two quarters (ending Dec. 1 and March 2) that the market expects, but only one quarter (ending Dec. 1).

Thus, as discussed above, in the base-case, I expect RIMM to trade at BV of US$18.44, which is 109% higher than its Nov. 12 closing price. The bullish-case is $43.90, an upside of 398%.

Where do you see shares of RIMM and AAPL one year from now?  Leave your comment below.


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  • IRA 2012

    I can see Rimm prices doubling up easily if bb10 gains traction, but this seems like bberrys last shot. If this flops, stick a fork in them hey are done

    • http://twitter.com/gadgetmasters Gadget Masters

      And that’s why there’s a huge potential in RIMM. Doubling means a 100% rate of return.

      • Michael Li

        I can see RIMM reaching its BV of $18.44 before the Jan. 30 event, which would be a 100% return without needing BB 10 to “gain traction”.

  • Ed

    Great article! Just to offer some opinion away from the numbers and hardware tech specs. It may be the case that investor sentiment is near bottom for Rim but near peak for Apple, however, the number of people who is interested in purchasing a Rim product is going down while there are still tons of people purchasing Apple product. Even m,y superiors at my company are switching from Blackberry to iPhones and iPads. It is hard to switch once you have one of its products since they have iClouds and other functions which integrates their different products together.

    From an individual’s perspective, their marketing scheme is working since having an Apple product is viewed as “cool” instead of receiving the “geeky” comment, which i am sure helped some people in their final decision. All the phone providers can brag on about how their tech specs are superior than an iPhone but at the end of the day, not everybody cares…. Let’s say 45% of the population are girls and from my experience, of all the ones who owns an smart phone, only 1 out of 20 uses a samsung galaxy, the rest all uses iPhone..Of the guys, let’s just assume 40% uses an iphone (my experience is 70%). This will still bring the total number to 60% of the young generation. The younger generation will be the driving force in the years to come and unless the next big thing hits, apple is still going to be the favorite.

    I agree that in the short term, apple will probably not see huge upside due to its current issues, but in the long term, apple will continue to outperform others. I agree that R & D is important for tech companies, however, let’s not forget that companies such as Apple and Rim is also in the retail sector and investment in retail stores have proven to be successful.
    Rim may be a short term favorite, but i just do not see much of a future even with all its shakeups…

  • gyubok

    Great summary of what is going on with RIM these days. There are too many things happening with RIM compared to Apple so I was getting lost in terms of following RIM’s current situation but this article clears it up!

    Thanks Michael!

    • Michael Li

      Thanks Gyubok!

  • Nick

    Great Article! Points out many things that people generally overlook.. BlackBerry 10 and Windows Phone 8 have the best chance to grow since iOS and Android are so stagnant..

    • Michael Li

      Thanks Nick! Agreed, competition is always good for consumers.

  • veeru789

    excellent articel. the most important thing is RIM is a value buy. a stock trading below TBV is a definite buy. one thing i would like to add is management. RIM seems to have found a solid top management in Thorstein. they are definitely committed and working hard. also no debt.
    Apple on the other hand seems to be having slight management issues. im sure they will over come. but in the short term, i see value in apple only if they start paying dividends. im not saying apple is over valued right now but its definitely not an undervalued stock. many people think apple’s strength is its ecosystem. but competetion from amazon and google is killing this advantage.
    purely on tech basis, i would also put a small bet on windows8.

    • http://techandlife.net/ Jason Smith

      Apple have been paying dividends for a little while now.

      • veeru789

        I’m sorry, I meant more dividends. What ever is there already is factored into stock price. And what good is 100 Billion cash sitting idle in bank specially at the interest rates in US today. I don’t see apple using this cash to invest in something new. Atleast nothing they announced I know.

        • http://techandlife.net/ Jason Smith

          the (bulk of the) money is not in the US. It is mostly offshore earning better returns. If you look at their spending projections you will see they are quite busy with their money too. http://www.asymco.com/2012/11/07/recapex-the-curious-case-of-apples-2012-and-2013-capital-expenditures/

          • Michael Li

            Apple paying a dividend shows me that they’ve no better use of the money. And it’s not entirely their fault – any company that has $100 billion+ in cash will have difficulty finding a good rate of return for it.

          • Michael Li

            What I think is happening is some value investors have been “lured” into buying the stock because of the dividend (at ~2.01% now). But they are feeling a lot of pain now with the recent decline. It’s a tech stock so it’s very volatile – hopefully value investors don’t get “fooled” by the dividend.

          • veeru789

            agree with ur comments, also 2% dividend yield doesnt not exactly qualify as high yield in my books. i would look at 5% as high dividend yield stock. but again, it depends on ur expectations and which country u live in.

          • veeru789

            after reading the link u’ve posted, im little worried about Apples capex spending. approx 10% is going to retail stores (which i dont think is good and is more like old IBM) and secondly, no significant increase in R&D spending compared to competetion. and most investments to supply manufacturing. is apple becoming like old IBM

          • Michael Li

            From the Asymco article it appears Apple might become more active in working with its suppliers in the future. Since Apple likely “moved a Sharp screen production line onto its books” it might take equity stakes in its suppliers in the future. This could actually help Apple’s supply chain.

          • John

            apple could take equity stakes in its suppliers to ensure its component supplies. considering that Tim Cook is a supply chain expert, this could happen. besides, apple needs to put its cash to use somehow. it would be a big change to apple’s strategy though.

  • http://techandlife.net/ Jason Smith

    Will the author please confirm that he is taking his own advice and purchasing RIM stock. Please post extract of share purchase receipt.

    I will be leaving my money in Apple stock.

    • Michael Li

      I bought RIM at C$9.10 and C$11.10. It closed today at C$13.88, after reaching an intra-day high of C$14.

      • http://techandlife.net/ Jason Smith

        nice work.

        • Michael Li

          Thanks

  • http://feeds2.feedburner.com/lucafilighedducom luca filigheddu

    The new game (from the dev of Pop Corny) you mentioned is here and after a few days in the App World is getting TONS of reviews… http://appworld.blackberry.com/webstore/content/18560868/?lang=en

    • Michael Li

      It’s already got 226 reviews after less than 3 days on App World. And it’s priced at $1.99 – it would be hard for a dev to earn that kind of revenue on iOS or Android.

  • http://profile.yahoo.com/3352WG3ICOGGX2IS2BG7V4JMOE BlackHalo

    Deluded

  • Sufian

    Wow this was incredibly insightful. I personally have over-looked many aspects that this article has been quick to point out and some of those have been what I believed to be Apple’s strengths such as their App store. If the BB10 is as innovative as the current phones in the market then this could truly be an improvement for RIM. Good work Mike! Keep it up!

    • Michael Li

      Thanks Sufian!

  • Stephen

    I see $600 for Apple and $20 for RIM.

    • Michael Li

      With RIM closing at C$13.88 today, $20 looks possible before January 30.

  • John

    BB 10 looks great!