“Canadian Warren Buffett” Loads Up On RIMM Stock: Mark January 30 in Your Calendar
Was Prem Watsa – a.k.a. “The Canadian Warren Buffett” – emulating his value-investing guru when he boosted his holdings in troubled Research in Motion (RIMM) during the third quarter? Was he feeling nationalistic, hoping to demonstrate his ongoing faith in a Canadian tech company teetering on the edge of collapse? Or does he just want to ensure that his BlackBerry device doesn’t become obsolete too quickly?
Whatever the reason, Watsa was one of a small number of investors who disclosed that they had raised their stakes in Research in Motion, makers of the iconic BlackBerry devices, during the course of the third quarter. (Others include Donald Yacktman.) And he has been doing so for a while. He first invested in Research in Motion, according to his filings, back in the third quarter of 2010; the stock made up just north of 5% of the portfolio at his Fairfax Financial Holdings asset management firm at that point. But since then, as the stock’s price has fallen 82%, Watsa has remained a buyer. Today the stock is Fairfax Financial’s second largest holding, accounting for 21% of the assets. Johnson & Johson (JNJ) is the single largest position, representing another 22% or so of assets.
Is there any upside ahead for RIMM, which has been circling the drain for a while now? Well, the BlackBerry 10 will hit the market on January 30, 2013 – close to the (revised) target date and ahead of the March date that analysts believed was more realistic. Realistically, the new product is the company’s last ditch effort – a kind of corporate ‘Hail Mary’ pass – to revive sales. That’s needed to compensate for the development costs that it already has incurred.
It’s hard to find many metrics that signal a turnaround might be imminent at Research in Motion. And about 20% of the company’s shares have been sold short by bears, even as Watsa has been snapping up his holdings.
It all seems to hinge on the BlackBerry 10 – and there are some risks associated with its launch. First, there is the fact that the company’s first entry into the tablet market suffered from bugs when it was pushed out the door prematurely: some are wondering whether the same fate might await the new “CrackBerry”. Then there are the apps: many, it seems, will be created during a big 36-hour “Port-a-Thon” scheduled to start today. Create or “port” games that can be played on the new BlackBerry and win big, is the promise: the first 10 people to get ten or more apps approved in the period will get $100 per app, plus a BlackBerry Playbook tablet, another device, and a trip to the Game Developers Conference in San Francisco next March. It’s one way to get a lot of apps loaded ahead of the launch – but again, speed doesn’t mean quality.
Watsa could, of course, be paying attention to a chart like the one above, showing just how much the company’s free cash flow yield has grown in recent years. Odds are, he’s been given a preview of the BlackBerry 10 (hey, if you were RIMM, wouldn’t you want to do whatever it takes to convince your biggest believer to hang around?) and likes its features. But this is a device that will be judged by the tech world, not by a middle-aged asset manager. If it clicks with this notoriously tough to impress crowd, sure, a short-covering rally could push the stock price higher. But RIMM will need to roll out something really distinctive for that to happen, and there’s no guarantee that is what’s in store for potential users. Certainly, former BlackBerry devotees have been deserting their cherished devices in droves in favor of smartphones, including Apple (AAPL) iPhones, in recent years.
Suzanne McGee is a contributing editor at YCharts, which includes the just-released YCharts Pro Platinum for professional investors.
Filed under: Company Analysis