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TheStreet Open House

How to Catch a Falling Knife

Stocks in this article: MSFTNOKFBZNGARIMMXOM

NEW YORK ( TheStreet) -- Facebook (FB), Research In Motion (RIMM), and Exxon Mobil (XOM) 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) with BB10.

Microsoft and Nokia

Microsoft (MSFT) 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.

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