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RIMM Is Ripe for a Fall

We all know by now that Wall Street analysts are in on the take. Why else would a mere 5% of all stocks covered by the “experts” rate “sell” and the rest warrant a “buy” or “hold” rating?

Well it goes to show you how things must truly be at Research In Motion (NASDAQ:RIMM) that the company achieved one of Wall Street’s rare “sell” ratings on Monday.

This from Toronto’s Globe and Mail:

Canaccord Genuity analyst T. Michael Walkley has become the latest analyst to weigh in on Research In Motion Ltd.’s turnaround prospects with the arrival of its BlackBerry 10 devices — and he’s not optimistic.

Mr. Walkley downgraded RIM today to “sell,” arguing that “fundamentals” do not support the stock’s recent share price appreciation. His price target is $10 (U.S.), which is $2 higher than his previous projection made in June.

Yeah, higher than June. But 13% down from here.

I recently panned RIMM stock, then got called all manner of colorful things in the comments section. I’ll admit that in the short-term I’ve been eating a lot of crow, too, since the stock is up more than 30% in the past 30 days and over 40% in the past 60.

But the long-term prospects of this company remain suspect at best. Risks here include:

Tablet Irrelevance: Remember the PlayBook? Yeah, it sold a mere 130,000 units in Q2 and through September had sold a measly 1.7 million since its launch. That’s vs. 7.5 million tablets running a Google (NASDAQ:GOOG) Android OS and roughly 14 million Apple (NASDAQ:AAPL) iPads. It’s only a matter of time before the BlackBerry dies altogether.

Sentiment, Not Sales or Profits: You have to agree with Walkley’s logic that the fundamentals simply do not support this kind of overheated run-up. RIMM still is handily in the red. It’s still projecting a loss in fiscal 2013 as well as fiscal 2014. What massive improvement in the underlying business has happened? Nothing, obviously … meaning this is a sentiment-driven rally that could evaporate just as quickly as investor whims change. Or put more succinctly by Josh Brown of The Reformed Broker, “This will end abruptly and badly.”

All-or-Nothing Rarely Ends Well: There are big believers in the all-or-nothing BlackBerry 10 launch. The company is bleeding cash and struggling to remain relevant, but I suppose it’s possible they can rise from the ashes with a killer BB10 launch … but Microsoft (NASDAQ:MSFT) is in the same boat and it ain’t going well with Surface or Windows 8, according to initial reports. People love to point to Apple or IBM (NYSE:IBM) as tech companies that pulled themselves away from failure with an innovative new age of ideas … but that’s an awfully tall order and there are far more examples of failed, irrelevant or useless companies that couldn’t make the leap as technology and the competition left them behind. Kodak (PINK:EKDKQ), anyone? Blockbuster? Or perhaps even the more relevant example of Palm?

Anyhow, I was bearish on the stock before, so I’m more bearish now after this pop of short-covering and sentiment-driven buying. But hey, I have been wrong before and will be wrong again. RIMM could prove me wrong and double or even triple in 2013.

And I suppose Microsoft could mount a comeback, too. But I’m not taking that bet.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing he held a long position in Apple but no other stocks named here.

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