The Secret of RIM

Research In Motion (TSX: RIM, US: RIMM) is one of my favourite non-resource stocks. For one thing, it's the only tech stock out there that I think is totally unstoppable in the next three years. Beyond that horizon, who knows really. Because it's tech, and for the average Joe, we really can't predict, or even really comprehend, the types of technical leaps and bounds that will occur in the next five years. So I don't even try.

The other thing about RIM is that it's good for trading and for long term investing. So it fulfills both of my stock hobbies. For this reason, I tend to watch it a little more closely from day to day than some of my other stocks.

For disclosure, I actually bought into RIM fairly recently, meaning within the past six months. However, I've watched it for a long time and I go to the company website fairly often. In fact, I often wonder how many times people visit the career page and think "RIM job". But that really has nothing to with why I bought RIM, I bought RIM for its story.

My version of the RIM story goes something like this:

A homegrown Canadian company takes the texting craze happening in the rest of the world and they package it in an easy-to-use Blackberry device palatable to the corporate world. Soon, middle-aged businessmen everywhere have their new favourite toy and thousands of middle managers have instant access to everything they need in the office, even when they are away from the office. These little devices become beloved, and they buy special leather pouches for them. They even buy special holsters for their hips, so they can whip out their Blackberry in a flash at a meeting. "You don't think I know last quarter's net sales, punk? Make my day." What was I saying about the Wild West recently? Anyway, those same guys whipping out their Blackberry a la High Noon are the dudes spending big bucks on their Department budgets or the guys that put together the I.T. purchase list for the next three years. To be fair, women use Blackberrys too, but they don't tend to have the holsters, so it's just not as funny.

Soon, the Blackberry (or oft used 'Crackberry') became the norm in the corporate world. And how it works with the old school I.T. guys, (that are now the middle managers), once you get a 'standard' that's the one you go with for a long time. It costs a lot to change systems or even train your whole corporation on new devices, and you don't want to invest the precious time in training your hardware support guys on two dozen different types of handhelds. They really don't have the time for all that hassle.

Blackberry was, therefore, the new thing across the country, and then it was the new corporate standard in the States, too. And that's a sweet spot to be in. It's market cap grew by 100% in the past year alone, so shareholders love this story.

But then in late-2007, the big R word surfaced. And all you hear about now in the tech sector is recession, recession, recession. Big companies all over the U.S. start cutting back, and tech budgets get slashed. Software upgrades can wait, and new toys are not the highest priority. I mean, there's still some purchasing and replacement, so there's still corporate buying, but that's not going to fuel any real growth for the future. Plus, those holsters really have started to come in handy. I bet far fewer men are losing their Blackberrys in the toilet when they bend over to flush and it falls out of their breast pocket.

The story starts to get sad here though, because over the past four months or so, RIM has really suffered. Because it's in the tech sector, it's treated like all of the other techs. It's like in the Outsiders, where Ponyboy was labeled by his peers as a bad kid, when we all really knew he was good. Each time another company in the handheld gang gave some earnings warning or low subscriber guidance, all of them would get painted with that bad boy sweep of the brush. Just like poor Ponyboy, RIM was no exception. Why, just the other day it got slammed when Intuit issued a warning. And how related are these two stocks? Not at all. So that's where RIM is fun with trading. You know that it's down for no good reason, so you buy.

But the other cool thing about RIM, and why I invest in it long term, is that it's made the leap into the consumer market. And not just our recession-prone North American markets, but they're going global, baby. They've hit all the big money, big business areas. They're in Bahrain for pete's sake, and who has more disposable money than Bahrain? They've taken Europe, and now they're infiltrating the BRIC.

And they aren't just doing it in the corporate market, they've jumped to consumers. They have 14 million corporate (aka business enterprise) subscribers, but they're also adding over 150,000 subscribers per week, and a lot of those are just normal consumers. The reason? They started getting flashy colours and integrating music, cameras and other little goodies, as well as PBX capability. So now you don't need a handheld and a cool cellphone, you can have it all in one. And based upon the company's recent subscriber forecast, that has to be the case.

So here you have a company that's literally taking over the world, is selling its business to both consumers and corporations, and yet is getting lumped in with the rest of the tech businesses. All of this equals amazing opportunities to make money. Or, at least that's the way I see it. Let's take January 23, 2008, as an example. Motorola and Apple freaked out the market, sending all tech stocks into the floor. RIM fell 8.5% that day. But I didn't worry, because I have that gut feeling that RIM is different, it's gone global, and so who cares about the U.S. consumers.

And the good news? I really think I'm right. Just the other day, RIM released the aforementioned subscriber forecast. And the stock flew, gapping up 10% at one point. The forecast was really just reiterating their previous views. It wasn't adding that much to their previous forecasts. So to me, this proves the stock had been just beaten down due to its sector performance (aka being in the handheld gang) and all it had to do was say, "yeah, we're still doing what we said we'd do."

That's why I really like this stock as an investment. It's doing all the things that I would do, if I ran that company. But it's also volatile and it's still at the whims of the rest of the handheld gang. So use that to your advantage to trade the swings, feeling a little safer in knowing that you still like the company even if you have to hold onto those shares for awhile because you didn't time the market right.

And that's my RIM story.