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RIM Shares Continue to Drop

Shares of the Blackberry maker were off again following its shaky earnings report.

SAN FRANCISCO -- Research In Motion (RIMM) continued to lose ground two days after the company's shaky first quarter and a disappointing outlook for the current quarter.

Shares of RIM were down 3.4%, or $4.25 to $119.21 Friday. That was on top of a 13.5% hit the day before.

But some portfolio managers and analysts believe that the BlackBerry maker's shares may have just been beaten down too much, and that the stock is ripe for buying on the pull back.

"The sell-off is overdone as I do think RIM is a market-share taker in the smartphone category and we are still in the early innings of the move towards smartphones," says Romeo Dator, co-portfolio manager of the

All American Equity Fund

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at U.S. Global Investors. The fund holds shares of RIM in its portfolio.

RIM is a "must-own stock for growth managers," adds Rob Sanderson, an analyst at independent research firm American Technology Research. Sanderson, one of the most bullish analysts covering RIM, reiterated his buy rating and $205 price target on the stock in a research note Friday.

"The number of technology stocks with over $1 billion in quarterly sales that are growing in triple digits is one," he wrote. "For RIM, given the early stage of the market penetration, extraordinary growth will be sustainable for some time."

RIM's revenue in the first quarter rose 107% to $2.24 billion from $1.08 billion a year ago.

But that was offset by selling, general and administrative expenses that increased 22% compared to expectations of a 17%-to-18% rise and a 28%-to-30% jump in the next quarter. The company's capital expenditure also rose to $195 million, about $15 million more than guidance, and up from $66 million in the same quarter the year before.

The spike in RIM's spending has been part of a

growth strategy

that called for increased marketing, more engineers and an expansion of its network operations center.

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RIM reassured analysts on the company's recent earnings call that it is making the investments to take advantage of the greater demand it expects to see later this year as competition in the smartphone market intensifies.

The company plans to meet the competition head on, with the release of the Blackberry Bold, a 3G phone with a very attractive screen and full keyboard, in the summer. Analysts also expect the company to launch a new touch-screen phone and refresh its older models such as the Pearl.

Still, Dator says he can understand why many investors feel let down. "The market does not like to be disappointed when a stock sells at such a P/E (ratio of price to earnings) level," he says. RIM trades at nearly 32 times its earnings estimates for fiscal 2009.

Despite the sell-off RIM shares are ahead of its peers. RIM's stock is up about 4.5% since the beginning of the year. By contrast,

Apple

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is down 14% during the same period. Competitor

Motorola

(MOT)

has declined 54%, and

Nokia

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has lost 35%.

That's still small consolation for RIM investors who are seeing the stock off nearly 20% from its 52-week high.

A bounce back could be a while away, cautions Dator. "I think investors will wait for a quarter to see what impact increased operating expenses has on unit shipments and margins," he says.