Blackberry Bets

10/29/2004 12:00 am EST


Jocelynn Drake

Financial Analyst, Schaeffer's Investment Research

Jocelyn Drake of Schaeffer's Investment Research is a leading technical analyst, who also focuses on contrarian investor sentiment. Yola Edwards combines technical and fundamental analysis for Top Stocks. Here, both advisors put their "research" in "motion."

"You’d be hard-pressed to find someone who hasn’t heard of Research In Motion (RIMM NASDAQ)," says Yola Edwards . "Its BlackBerry communications devices are used by business people all over the world, and sales have been booming. RIMM, which is based in Ontario, has grown in only two decades from just another Canadian technology start-up to an international leader in mobile communications. Since the start of the year, the share price has soared almost 350%. So what will the share price of the popular BlackBerry handheld wireless communications device do next? A technical analysis review of the chart pattern reveals that over the past three months the share price traced out a bullish inverted head-and-shoulders pattern. With the stock in overbought territory (trading above the Bollinger band), it reversed course. But don’t count the stock out yet. The fact that it has traded above the upper Bollinger bands is quite positive and suggests higher prices to come. Also, the longer-term chart reveals an interesting picture. The stock has traced out a bullish saucer bottom and the stage could then be set for the stock to rally to about $152 over the next year. We emphasize the stock is considered high-risk, so only risk-tolerant investors should consider venturing into it. This is our top speculator’s pick of the month."

The stock has also gained the attention of analyst Jocelyn Drake at Schaeffer's Investment Research. She notes, "Research In Motion recently reported second-quarter earnings of $70.6 million, or 36 cents per share. Excluding items, the company raked in $88.9 million, or 45 cents per share, besting the consensus estimate by two cents per share. Revenue for the three-month period spiked 147% higher. What's more, the number of BlackBerry subscribers rose by 317,000 from the previous quarter to total 1.657 million. Looking ahead to the third quarter, the firm predicts earnings (excluding items) of 50-55 cents per share. This is comfortably above the Street estimate of 49 cents per share. Meanwhile, sales for the quarter are expected to come in between $340 and $360 million, just above the average analyst outlook of $358 million. The company firm has pegged fourth-quarter earnings at 57-63 cents per share on revenue of $385-$410 million.

"From a sentiment standpoint, pessimism continues to increase toward RIMM. Puts, which are downside bets by options traders, easily outnumber calls - upside bets - in the front three months of options. The current reading is now higher than almost three-quarters of all those taken over the past 12 months. Furthermore, short interest spiked by 36% in September to 12.1 million shares. With more than 8% of the stock's total float sold short, the shares could benefit from some short-covering support. Technically speaking, RIMM has outperformed the NASDAQ Composite since September 2002. The shares continue to rally along the support of their ascending 10-week and 20-week moving averages and are trading near an all-time high. With pessimism still lingering toward this outperformer, RIMM may still have room to run as the bears unload their positions, increasing buying pressure on the shares."

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