Let's Give Palm a Hand

09/10/2008 12:00 am EST


Joseph Hargett

Financial Analyst, Schaeffer's Investment Research, Inc.

Joseph Hargett of Schaeffer's Investment Research says the pioneering smart phone maker trails its rivals, but may have some mojo left.

Compared to the "Big Boys" Apple (Nasdaq: AAPL) and Research in Motion (Nasdaq: RIMM), Palm (Nasdaq: PALM) is at the short end of the smart phone stick. What's more, according to [a recent] BusinessWeek article ("Palm's New Smartphone: Close but No Cigar", August 18, 2008), PALM remains hard pressed in this rapidly expanding market despite the release of its new Treo Pro.

The [magazine's technology columnist Stephen H. Wildstrom] praises the design of the device, but derides its dependence on the Windows Mobile operating-system platform. What's more, while PALM has added its own tweaks to the OS, it's "not that easy to distinguish the Pro's software from the offerings of HTC, Motorola, Samsung, and others."

The second major [disadvantage of] the new Treo, according to Wildstrom, is the fact that PALM doesn't have a US partner for wireless service. This leaves the device at the unsubsidized price of $550 each, compared to the AT&T subsidized price of $400 for the new BlackBerry Bold, and $200 for Apple's iPhone.

The pessimism toward the new Treo is somewhat baffling to me. The biggest complaint about Apple's iPhone (aside from connectivity issues and hardware problems) is that it is tied to AT&T's network. While the Treo's lack of a carrier certainly is a [negative], the author failed to pick up on the potential boon for a device with no strings attached.

I also disagree [about the Windows Mobile OS], as some 90% of the world runs Windows desktop software, making the Treo easily compatible with nearly every potential customer's PC. While Windows Mobile may be clunky to some, the interoperability of the platform with the standard PC OS could be a major boon to others.

Finally, this article underscores the wealth of pessimism levied against PALM on Wall Street. Currently, the stock's Schaeffer's put/call open interest ratio (SOIR) of 2.16 indicates that puts more than double calls among near-term options and ranks above 87% of all those taken during the past year. Meanwhile, 39% of the stock's float is sold short, and ten of the 13 analysts following PALM rate the shares Hold or worse.

Just looking at the sentiment data, you would think that PALM is one dog of a stock. However, the shares are easily besting the Standard & Poor's 500 Index (SPX), rallying more than 26% in 2008 compared to the SPX's loss of more than 13%. Furthermore, PALM maintains the support of its ten- and 20-day moving averages, and is poised to log its first monthly close above its ten- and 20-month trend lines since October 2007. (It closed above $7 Tuesday-Editor.)

If the Treo Pro sees even a modicum of interest from the public amid more popular offerings from RIMM and AAPL, we could see PALM shares sharply extend their recent run higher.

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