Research In Motion: Crisis with Opportunity

It is a total fiasco; I don't know how to describe it.  Research In Motion (RIMM), once a pet of the Wall Street and the famous manufacturer of the BlackBerry, plunged 19% on Friday. Since the birth of the iPhone, the BlackBerry has quickly become a thing of the past.  It simply cannot compete with iPhone. While everyone runs away from RIMM and dumps it as quickly as possible, I start to see opportunities. A few things begin to interest me now about RIMM:

• It is true that RIMM's products are out of favor now but don't forget, Apple was in a very similar situation just a very short few years ago. Who can say for sure that RIMM won't find some way out with all the technology, inventions and patents in hands?
• One of the key problems for RIMM is its governance structure: it has 2 CEOs, which is a killer due to unnecessary conflicts and bureaucracy. I think the board has been wakened up this time and there is a good chance that one of the CEOs will be removed. Or even better, a totally new CEO may be brought in who may have the vision of Steve Jobs to lead RIMM to revivify. 
• While RIMM's stock price has plummeted, its valuation has become much better. Let's see a few stats: PE is as low as 3.8; it has $2.4 billion cash with no debt, i.e. $4.6/share of cash; its book value is about $18.4 per share. And it is still bringing in revenues of over $20 billion.

With this kind of valuation, I won't be surprised to see some sort of buy-out or merge if its share prices further decline. I do see this as an opportunity emerging from the crisis RIMM is experiencing. I cannot help but get in. Of course my way of speculation is to take the opportunity now at its price of around $24/share but also leave a high margin of potential errors. In other words, I won't lose money unless RIMM drops another 40% or so to around $15/sh. I think it is a good bet.  



By the way, one of my put selling positions was closed on Friday when it reached its maturity. I shorted the emerging market via ETF EEV. While most of the time in the past year the emerging market was holding not too bad, it has been hit also very hard lately this summer, which is great for me given I have been shorting it. The put options expired worthless, meaning I reached the full profit target ($3900 minus trading fees).

EEV110917P00032000

-10

0.00

3.90

$3,900.00

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