Throw This Stock Away

I've had a lot of fun writing the first two installments of this column. Analyzing a stock, and then coming up with three better investing alternatives? This is the ultimate form of constructive criticism.

However, I realize that my first two targets are companies that have already begun their descent from greatness.

I want a real challenge this week. I need a stock that's near the top of its game, and wildly loved on Wall Street, yet highly susceptible for a freefall.

I've got it! Come on down, Research In Motion (Nasdaq: RIMM).

These berries are ripe for the plucking
Research In Motion has redefined the smartphone industry. There are 14 million BlackBerry subscribers. Growth has been explosive. The new BlackBerry Bold offers many of the rival iPhone's features, but with the convenience of a physical keyboard.

Everything seems to be going right for the company. Research In Motion is poetry in motion. So if you're a contrarian, this is a good time to worry. The future may not be as rosy as the past.  

Let's go over a few of the things working against the company.

Apple (Nasdaq: AAPL) should eat into the BlackBerry harvest when its new iPhones -- half the price of current models, yet loaded with more features -- hit stores next month.Tastes change in the wireless realm. As Chuck Saletta pointed out earlier this year, there was a time when Motorola (NYSE: MOT) was making the hottest phones and Palm (Nasdaq: PALM) defined the smartphone industry it pioneered. Times change. Batons are passed.Research In Motion is no longer obliterating profit targets, the way it did from fiscal 2005 through fiscal 2007. Its last blowout quarter came last summer, when earnings of $0.39 a share were more than triple the $0.12 a share Mr. Market was expecting. In the three latest periods, RIM tops analyst estimates by no more than 7%."RIM has a market valuation of $75 billion, but just 1% of the cell phone market," The High-Tech Strategist editor Fred Hickey told Barron's over the weekend. "Nokia (NYSE: NOK) has a market cap of $100 billion, and a 40% market share. What kind of upside is there at this valuation?" Sure, he didn't point out how RIM milks a whole lot more out of every BlackBerry user, but it's an interesting point.With the stock priced at 35 times fiscal 2009 profit guesstimates, the shares are trading at high multiples relative to both the market and its fickle industry.

Good news
I promised to have three alternatives for RIM in your portfolio. Here they are.

Nokia . The handset leader is not growing as quickly as RIM is? But it is fetching just 10 times this year's net income targets, and an appetizing nine times next year's bottom line multiple. RIM is worth a valuation premium, but I don't believe it's worth paying three times the Nokia forward-earnings multiples.Apple . Yes, I think the new 3G iPhone is a game changer. Apple already had a market of 6 million early adopters paying more than twice as much for their first-generation smartphones. The rest of the envious market can stop drooling next month. Speedy Web surfing, GPS mapping, and better corporate e-mail support will make the cool iPhone a stronger competitor. It certainly doesn't hurt that Apple is also the undisputed champ in portable media players and the fastest-growing major computer maker.Google (Nasdaq: GOOG). Yes, Google. The gPhone rumors proved hollow, but instead of a handset, Google is giving us a mobile-phone operating system. You can see why Google is following dot-com portal heavies into this space: Mobile browsing is booming, and companies such as Google and Yahoo! (Nasdaq: YHOO) want to serve up the paid-search and display ads. Since Google is the leader in Internet advertising, it has the best shot to monetize wireless-communications usage. Really.

Research In Motion is still hot. It has a history of burning nonbelievers, like me. However, I'm not predicting grim capitulation here. I still think BlackBerrys will continue to be popular. I just see competitors closing the gap, and when you're priced as dearly as RIM is, that's a gap you can't afford to see narrowed.

Throw the stock away, while you can still cash out on top.

Copyright © 2008 Universal Press Syndicate.