This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

How to Catch a Falling Knife

NEW YORK ( TheStreet) -- Facebook (FB - Get Report), Research In Motion (RIMM), and Exxon Mobil (XOM - Get Report) closed at lows of the year Monday. They represent three different industries, devalued for different reasons, and three very different likely outcomes; however, they all share one important characteristic: You can make you money with them if you time your investment correctly.

RIM closed in single digits Monday for the first time since December 2003. For a company that remains cash-flow positive (with a possible loss in the current operating quarter) and profits of $2.22 a share in fiscal 2012, it's clear the BlackBerry is being thrown out with the bathwater.

The upcoming June earnings report is expected to bring another massive writedown in inventory (recall that RIM wrote down $465 million worth of dust-collecting PlayBooks about six months ago), wiping out this quarter's earnings. It doesn't matter though if RIM makes a profit or not (Read my RIM's valuation calculation article).

The latest earnings warning once again knocked the legs out from under the stock, but the market is overreacting. As I described in my valuation article, the liquidation value is much higher than the stock price.

Investors want RIM to make money this quarter, however guidance is at least breakeven on a cash flow and net basis. RIM's CEO Thorsten Heins is hoping to buy time to either get the best price possible or for BlackBerry 10 (BB10) to turn things around. Don't count on RIM pulling a Nokia (NOK - Get Report) with BB10.

Microsoft and Nokia

Microsoft (MSFT - Get Report) and Nokia's homerun Lumia 900 may be the prettiest girl at the dance tonight; however, you may not see her at the next dance. Nokia's trouble keeping up with demand and a limited number of carriers demonstrates Nokia's lack of capacity to grab market share. Perhaps Microsoft and RIM should have partnered up? With the time and effort RIM has invested in BB10, maybe they could have simply skipped the software development and went with Microsoft Windows for free.

Based on the chart and technical analysis, RIM is well into oversold territory. Option premium is rich, and I maintain that selling the June or July $10 strike put options offers a favorable risk-to-reward ratio, especially compared to buying RIM stock outright. Nokia is priced like an option that doesn't expire, but it doesn't mean Nokia can't fall in value.

Speaking of falling knives, Microsoft broke through the 200-day moving average Monday and managed to close above. While bearish technically, Microsoft walks onto the field with a single-digit price-to-earnings ratio and Windows 8 just around the corner. Microsoft may become a value buy soon.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
ZNGA $2.46 2.07%
FB $92.47 0.08%
NOK $7.04 0.00%
MSFT $47.45 1.39%
XOM $80.03 1.05%


Chart of I:DJI
DOW 17,050.75 +138.46 0.82%
S&P 500 1,995.83 +15.91 0.80%
NASDAQ 4,810.7880 +19.6360 0.41%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs