From Cabot Wealth Advisory 1/25/10 Sign up for free Cabot Wealth Advisory e-newsletter
Research in Motion (RIMM), is a Canadian company and a leading manufacturer of wireless cell phones designed to handle voice and email communications. The company’s BlackBerry smart phone has been the clear leader in the business (commercial) market since its introduction in 1999. Research in Motion has recently launched an effort to sell BlackBerries to casual (consumer) users, which has met great success. Sales to business users have been robust, as evidenced by solid sales and earnings growth during the recent recession.
One of Research in Motion’s independent software vendors, Mezeo Software, now offers cloud storage to BlackBerry owners, which allows users to upload, access, view, and share files online from their BlackBerry smart phones.
Research in Motion commands 55% of the U.S. smart phone market, and the company maintains a strong balance sheet with $4.40 per share of cash. The company is in the enviable position of having plenty of cash to invest in new products to stay ahead of the competition.
New smart phone models, such as the Bold, the Curve and the Storm are selling very well. Aggressive expansion overseas, except China, is providing surprisingly strong growth, too. I expect consumers to opt for less expensive models, which will hamper total sales dollars, but aggressive promotions and new products will help Research in Motion gain additional market share.
Sales soared 51% and earnings per share jumped 23% during the 12 months ended 11/30/09. I expect sales and earnings growth to exceed 20% during the next 12 months, with EPS growth of 20% per year during the next five years. RIMM shares sell at a very modest 13.3 times my next 12-month EPS estimate of 4.79. RIMM pays no dividend. The stock is clearly undervalued and presents an outstanding investment opportunity.
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J. Royden Ward
Editor of Cabot Benjamin Graham Value Letter
A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the Value Letter.