Investors chasing the explosive rise in the shares of Research In Motion Ltd. might want to think again.
The reason: It’s a rare technology darling that falls from favour, then recovers to anything approaching its former glory.
Among the few that have achieved the feat are current crowd favourite Apple and computer giant IBM. Given their immense popularity now, it is hard to remember that both were once shunned as has-beens, but they were.
Meanwhile, there are a host of companies that have either failed to make a comeback, or are in a similar position to RIM – once mighty innovators struggling to get their mojo back.
Among the disappointments are mobile phone giant Nokia, telecom suppliers Alcatel Lucent and JDS Uniphase, not to mention Canada’s Nortel. Palm Inc., the original smartphone pioneer, stumbled and was never able to recover. Many companies disappear, or if they survive at all, become shadows of their former selves.
“It’s like catching a falling sharp knife,” cautions Stephen Takacsy, portfolio manager at Lester Asset Management in Montreal, of the difficulty of trying to grab a technology company on the rebound without getting bloodied.
Mr. Takacsy doesn’t own RIM now, but held it briefly a few years ago. He sold when Apple’s iPhone started to succeed. More recently, he looked at the company again but concluded “that RIM was a value trap” – investor jargon for companies that appear cheap but actually aren’t.
Recent buyers of RIM aren’t taking this conservative stance, bidding up the shares on excitement over next year’s launch of the company’s new BlackBerry 10 smart phone. The shares touched a high of $12.09 on Thursday in active trading and closed at $12, up $1.77. The gain meant the stock had almost doubled from the $6.18 low point it touched in late September.
Some investors might consider the shares to be cheap, considering that they’re down more than 90 per cent from their height of $149.90 reached in 2008 just before the market meltdown.
Others, though, express skepticism. “The stock is very bombed out, but on the flip side there is the issue that their operating system up until today hasn’t really been able to handle what people want it to do with a smart phone,” says Jason Donville, president of Donville Kent Asset Management.
Mr. Donville cautions that people who buy the stock now are essentially speculating on the unknowable, because of the difficulty of estimating how successful RIM’s new phone will be.
“I think you’ve got to see this as a punt, and not as an investment,” he says.
The tech space presents particularly difficult terrain for investors trying to handicap a recovery of a one-time industry leader.
The key problem is that devices and consumer preferences change rapidly so once companies fall behind, it’s difficult to regain lost ground.
“Technology moves so fast and evolves so fast [that] if someone comes out with a better mouse trap, you’re toast,” Mr. Takacsy says. “Yes, companies can come back, but I don’t think they can come back right away. They have to reinvent themselves, like Apple did.”
But the experience of Apple, which pioneered personal computers, then moved into phones, is the exception, rather than the rule. Most often, tech pioneers that lose their initial edge don’t recover.
“We’ve seen it with Palm Pilot, we’ve seen it over and over again. We’ve seen companies who were the first to come out with something and then they lose their lead and they never really come back,” Mr. Takacsy says.