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Stock Picks Bob's Advice
Monday, 3 January 2005
A Reader Writes "I have a few questions"
Hello Friends! Thanks for visiting my blog, Stock Picks Bob's Advice. Wasn't today's stock market results a LOUSY way to start off an investing year? Anyhow, I had the pleasure of getting a nice email from Joyce who wrote me today with some questions. She wrote:

Hi Bob:

I started visiting your blog recently, thanks a lot for all the information. They are very helpful.

I have a few questions:

1. What do you do when a stock starts rising but does not get to 30%, say it gets to only 10% then starts sliding? Would you sell?

2. I have noticed that you posted RIMM on one of you blogs, what do you think of the recent news on that stock?

Thanks a lot for answering the above questions and happy new year.




Joyce


Well the first question is an easy one. When I purchase a stock in my trading account, I set an 8% loss limit; in reality I use a 'mental' stop. I simply check the stock and see what the gain or loss is and when it passes 8% on the downside, I sell the holding.

In fact, I allow a stock to wander all over the range between a loss of 8% and a gain of 30% before doing anything at all. That is, if a stock is up 12 or 15% then wanders down, as you are inquiring, I am still sticking with that 8% loss point to sell the stock. That's just what I do. You might very well want to do something different.

Your second question is about RIMM. Maybe you can give me the date I discussed this, but I don't see this particular stock on the list of Stock Picks for 2003 or 2004. I do believe you are correct about your point though. And your question still is "what should a person do?"

Please remember that I am an amateur investor, so I am not qualified to dispense advice to you personally, but let me take a better look at RIMM.
Basically, on December 21, 2004, RIMM reported 3rd quarter results. Revenue came in at $365.9 million, up 18% sequentially and 138% year-over-year. THOSE are fabulous revenue numbers.

Net income came in at $.46/diluted share, up from $.36/diluted share the prior quarter, and up over 300% from the $.10/diluted share the prior year. Once again, those are FANTASTIC results.

So WHAT was the bad news? Basically, as Reuters reported on December 22, 2004, the revenue guidance for the 4th quarter was a bit of a disappointment for many analysts. RIMM forecast 4th quarter revenue between $390 to $410 million; three months ago RIMM had guided between $385 to $410 million. Analysts had expected revenue of $411.3 million, so this was a disappointment. However, recall that I just noted that the 3rd quarter revenue came in at $365.9 million, so they are still talking about strong sequential revenue growth!

One of the problems shows up if we look at "Key Statistics" on Yahoo for RIMM. Here we see that the trailing p/e is at 59.86 with a PEG of 1.52. Price/sales also is rich at 13.38, and Price/book at 7.76 is no bargain. Thus, the stock is priced "near perfection" so the market is skittish at even the hint of a disappointment. Recall that stock prices are determined both by actual past results and expectations of future results.

Also, let's take a look at a "Point & Figure" Chart from Stockcharts.com:



I am NOT a big technician, but the stock has been incredibly strong up to now, moving higher way above that lower blue "support line". It bothers me a little that the stock made a high around $95 sometime in November, 2004, and then only made it to $94 the second move upward, and seemingly "rolled-over" to its current downward move. But I am not one to predict future moves based on stock charts like this. I would just be cautious if I were to be buying the stock for the first time.

What to do if you hold the stock? I can only tell you what I tend to do. Since the news is really not some fundamental bad story, just that the buying public is starting to get ridiculously high expectations, I wouldn't necessarily sell based on the story. I still manage my stocks based on the stock price itself. I use all of those sell-points I discussed and try not to anticipate stock moves which almost always surprise me.

Is that an adequate answer for you? It sure WAS long-winded. If it isn't clear, feel free to re-email me or comment right here on the blog and I will try to answer your question. Remember, I cannot tell you whether RIMM or any stock is a good investment for you! I am just an amateur and you will need to see a professional investment advisor to tell you that. I can just look at a stock and tell you what I see...and what I see isn't always the best view!

Thanks so much for stopping by! Good-luck and let me know what you have done and what you are planning to do with RIMM and we will see as everything unfolds what RIMM will be doing into the future!

Bob


Posted by bobsadviceforstocks at 5:05 PM CST | Post Comment | Permalink
Updated: Monday, 3 January 2005 5:12 PM CST

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