Stocks for the Post-RIM World

07/19/2012 9:45 am EST


Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

It’s not a good sign when your company is getting the reputation as the next Nortel, but as the company begins its death spiral, it’s a good opportunity to see which companies are in the ascendency, writes Gordon Pape of The Canada Report.

It was not a bunch of happy campers who turned up at last week’s annual general meeting of Research in Motion (RIMM) in Waterloo, Ontario. The shareholders were restless, and made their displeasure known to management and the directors in no uncertain terms.

Pointed questions were asked as to why the company hadn’t reacted more quickly to deal with its deteriorating situation. There was much breast-beating over the delay of the launch of the BlackBerry 10 until next year.

Although all the directors were re-elected, an unusually large percentage of votes were withheld, as investors protested the decline of the company’s fortunes. Recently appointed CEO Thorsten Heins tried to placate the capacity crowd with soothing words, but many shareholders seemed unconvinced, judging by the media reports afterwards.

No wonder they were skeptical. First-quarter financial results, released two weeks earlier, were a disaster.

Year-over-year revenue dropped a stunning 33%, to $2.8 billion. The company posted a net loss of $518 million (99 cents a share). Sales of BlackBerry phones plunged to 7.8 million, while only 260,000 Playbook tablets were sold, raising questions as to whether the Playbook can ever be competitive or even viable in the world of iPad and Samsung Galaxy.

As the company announced massive layoffs, there was much speculation as to whether it can survive and talk that it could be the next Nortel—the high-tech giant that once dominated the Toronto Stock Exchange, but eventually went into bankruptcy and was liquidated. It’s too soon to be writing similar obituaries for RIM, but it’s clear this is a company in deep trouble.

If RIM goes down, or is taken over by a foreign competitor, what’s left in Canada’s shrinking information technology sector? Not much! The S&P/TSX Capped Information Technology Index consists of only six stocks, and four of them are having rough years.

Besides RIM, the other laggards are Celestica (CLS), Open Text (OTEX), and Wi-Lan (WILN). With so many of these stocks struggling, it’s surprising the index is only down 10.5% so far this year, as of the July 13 close.

The reason it has not done worse is because of the performance of the remaining two companies: Montreal-based CGI Group (GIB) and Vancouver’s MacDonald, Dettwiler, and Associates (Toronto: MDA), both of which are up about 20% year-to-date. These two stocks are among the few bright spots in Canada’s information technology sector going forward.

MDA is my recommendation and I will write about CGI Group in a future issue.

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