Wednesday, February 8, 2012

Companies Piquing Interest Research in Motion RIMM, Transforce TFI, McDonalds MCD

Research in Motion (RIM in Toronto, RIMM on Nasdaq)

  The maker of the BlackBerry smartphone has seen heavy trading volume ever since January 25, the day Toronto-based investment firm Fairfax initiated its purchase of 14.1 million RIM shares for $400M which raised its stake to just over 5.1% (about the same as what's held by RIM founder Balsille).

That same day outgoing RIM Chair, Lazaridis upped his interest by 3.1 million shares (over $50M worth) bringing his total up to 30M shares (5.6% of company). Volume of trading in shares of RIMM (Nasdaq) has ranged from 1.5X to as high as 5-6X the average.
The company still trades 18% below book value which isn't fair given that the book value of the company actually went up last quarter consequently the stock price continued its descent. As well, RIM has not lost its title as market share leader in South Africa 70% (2nd is Nokia), Canada 35.8% (in November among platforms, leading Apple which is just over 30%), Indonesia 46% (3Q2011 up from 40%, 2nd is Android at 29%) and Latin America 25.6% (2nd is Samsung at 23%).
In my opinion, the company is being valued at a price uncharacteristic for tech companies. Take Book Value Per Share for example; Feb 9, 2012: RIM's 0.83X is much lower than Apple 4.94X, Google 3.41X & even Nokia 1.12X, Motorola 2.36X; RIM's book value per share of 0.83 on Feb 9, 2012 is near a record low, only one year ago on Feb 28, 2011 it was 3.88X.
P/E ratio continues to be under 4.0 which remains much lower than competitors Motorola and Nokia, companies that are also losing market share in the U.S. to Apple and Android. In my opinion the market is giving rim's 2012 QNX product launch NO respect meaning that the next generation blackberry phones don't need to be groundbreaking for the stock to capitalize. RIM has had years to work on development and its research and development spending is comparable to Apple's (doesn't even take into consideration the 2010 acquisition of QNX) and has been going up (+3.4% to $369M last quarter).
Apple losing market share in Germany, France; In the three months ending November 2011 Apple's share of the smartphone market in Germany slipped to 22% from 27% subsequently in France it declined to 20% from 29%. Opportunity for BlackBerry ? Perhaps, but it still must contend with Android which leads by a significant margin in Germany where's it's at 61%.
Update : On February 14, 2012 it was revealed that Greenlight Capital Inc bought more shares of RIMM (total investment in technology stocks increased by 8.1%). During the same quarter, Leon Cooperman's Omega Advisers bought 1.51 million shares doubling its position. 2012 earnings estimate for RIM puts eps at $2.92.  Week of February 27, 2012 Wordpress releases an app that makes updating and creating content easier to do for PlayBook users.

RIM recently showed off what the QNX platform can do in a concept Porche. All of the systems in the QNX platform are available to auto manufacturers, which can tailor the technologies to their own specifications, so in the future RIM's business might not be limited to just handheld devices. The next generation of QNX auto will be more auto-centric and based on HTML5. Also of note: An NFC chip makes it possible to link a blackberry phone to the car. The console allows for easier navigation and better sound quality!
Over the last month RIMM was up over 9% but the stock has severely underperformed in the long term, -12% last three months, -24% last six months meaning there's still a lot of room to grow (even Nokia is up over 6% last six months). In the short term the overall trend seems to be up for tech companies so I'd expect the same for Research In Motion.

*RIM recently received FIPS 140-2 certification of its BlackBerry 7 smartphones. The award emphasizes security and is issued by a Canadian agency.
*November 14, 2011: BlackBerry 7 phones awarded common criteria EAL4+ Certification meaning that the combination of security mechanisms and product design meets the highest level of accreditation. This applies directly to the BlackBerry® Bold™ 9900, BlackBerry® Torch™ 9810, BlackBerry® Torch™ 9860 and BlackBerry® Curve™ 9360
*Carriers such as Sprint still refuse to carry the Playbook despite it being recommended by the US federal government and BlackBerry already being ingrained in the corporate market through mobile enterprise. Much of the 42% growth in tablet sales in 2012 will come from outside North America where companies rely less on Sprint for marketing. I think that will play well for RIM which currently has only 1% of the tablet market. Currently, RIM's tablet business only makes up 0.2% of the company's stock price (by comparison phones are 52%, according to trefis). Also of note: 18% of Apple's share price comes from cash net of debt, comparable to RIM's 17%. The iPad contributes 12.7% of Apple's price.
*Revenue outside the U.S., UK, and Canada was up 48% over the last three quarters of 2011 to US$8.24B. That compares to a revenue decrease of 44% in the United States. I think that the future of the smartphone market is outside of the USA (smartphones are already becoming commonplace there unlike much of the developing world like Indonesia and even Brazil where bandwidth remains constrained). Investors are undoubtedly overly concerned with the American market rather than looking at the global picture. More info at RIM & BlackBerry still leaders.

Transforce (tsx:TFI)
Canada's biggest trucking company and one of the five biggest in North America. It's not afraid of making acquisitions. Over the last year it has become a player in the United States through acquisitions Dynamex ($248M) and IE Miller Services (Nov. 2011, $138M in annual revenue). It has also become a major player in the oil and gas sector where it now operates oil rig transporters/oil field terminals in both Alberta and North Dakota (shale).

Also to consider before choosing this company:
*Canadian trucks have FULL ACCESS to US roads.
*Transforce dividend in this current fiscal year is on track to be at least 12-15% higher than last year (45c vs 40c, could be more if the final quarter shows new growth). That's significant considering the company's annual dividend has been stagnant the previous two years.
*TFI stock as traded on the Toronto Stock Exchange is up 28% last 3 months, 34% last 6 months.
*Revenue for the quarter ended September 30, 2011 was $742.98M 32.4% higher than the quarter ended March; quarterly revenue had been stuck between $500 and $560M for a number of quarters prior to that. As compared to the March 2011 quarter the September quarter earnings per share did not increase HOWEVER dividends were up by 25% !

McDonalds (nyse:MCD)

6.7% overall increase in same-store sales in January 2012; 7.8% increase in the USA, 7.3% increase in Asia, 4.0% increase in Europe (any growth in Europe is a positive sign considering the region's economic turmoil). Even more, without considering the changes in currency same-stores sales showed an overall increase of 9.1%. The 7.8% increase for the USA compares to just 3.1% last year which bodes well for the US market. Other notes: Results from Russia are included in the category for Europe. Sales from franchisee operated locations (80% of the 33,000 locations) are only considered in system-wide sales not in company revenue.

In the quarter ended December 2011, McDonalds revenue was $6.8227 billion up 9.80% from 4Q2010 but down 4.80% from the previous quarter, profit was down 8.7% q2q HOWEVER dividend per share was 14.75% higher than the previous quarter at 71 cents. Remember too that McDonald's dividend had been the same quarterly for over a year before the latest quarter when it went up to 70 cents from the usual 61 cents. The company profited 1.376B in the December quarter and $5.503B on the year. Fiscal 2011 revenue +12.1% on the year compared to only +5.85% in 2010 and -3.306% in 2009 so the long term trend is also a source of optimism.
Your next question is probably how's the stock doing. Very well, it's up 1.7% last 5 days, been stable over the last month, but 5.76% higher over the last 3 months. Long term: +21.85% last 6 months, +32.76% last 12 months, +124.63% last 5 years, +274.44% last 10 years. Both short-term and long-term performance is great which bodes well for investor confidence. I also like how diversified McDonalds has become. It is less reliant on the US market than it ever was before. How many other companies get 68 million customers in 119 countries every day ?

McDonalds has also been busy renovating stores, in Canada at least. The company has already begun its $1 billion 2012 effort to modernize 1,400 locations across Canada.

Bombardier (tsx:BBD.B) led the Toronto Stock Exchange in terms of volume trading on February 8, 2012. The volume was 8,862,715 shares.

Gold Investing  On Feb 9, 2012 Warren Buffet argued against owning gold in an article posted on Forbes.  He raises some interesting points but in my opinion the assessment makes assumptions that aren't relevant today.  Didn't give enough examples of when cash wasn't king as was the case in the 1930's.  Also fallacious:  Noone is able to choose Pile A (all the world's gold) and Pile B (all the world's crop land).  Simply stated, it's unrealistic.
Also, consider that 64% of Ron Paul's investments are mining stocks.  UBS: 22% of central banks consider gold the most important reserve asset for the next 25 years.  Billionaires like George Soros are investing in gold like never before.

3 comments:

  1. It's looking so bad for RIMM right now. I don't think they will recover. At this point holders of RIMM stock should hope for a buyout.

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  2. I'm optimistic about RIM. It plans to introduce a larger tablet in the coming year and the qnx run blackberry 10 phones will prove popular among its core base (and maybe even attract new customers away from other companies).

    RIM has a relatively high beta value meaning the stock overreacts to indicators affecting the tech industry. It has a large resource base and continues to be a big r&d investor.

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