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Valyooo (33.59)

I am super cautious with value traps...but COME ON



June 04, 2011 – Comments (26) | RELATED TICKERS: BB

I won't even thik about touching staples, microsoft, best buy, or cisco right now



i mean seriously.  It's down 45% in less than 3 months.  Think about what it takes for a business to become 45% less valuable in 3 months.

It's p/e is 6 and it keeps beating earnings estimates.  Its still above the iphone in smartphone space.  Any good news could shoot the stock up 15%.  Its really close to the march 2009 lows...when the world was coming to an end.

I don't like catching falling knives...but this looks really friggin cheap.  Do you think it will fall to a p/e of 5?  4?  Its growth will be slow but not negative.  At a p/e of 5 it may even be a freakin takeover target.  This is has to be worth closer to $45-$48.

26 Comments – Post Your Own

#1) On June 04, 2011 at 2:19 AM, MyunderratedLife (95.05) wrote:

I agree with this 100%.

I've been watching  RIMM fall like dagger (or knife) with an opinion somewhere between curiosity and coveteousness.   I think any dispute between value investors is regarding the timing of the bottom rather than contending whether it is undervalued or not.

It seems people are pontificating on the demise of RIMM the stock, due to the positioning of its formidable competitors rather than analyzing (what to me appears to be) the undervalued underlying business...

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#2) On June 04, 2011 at 9:15 AM, Dintaurran (< 20) wrote:

I agree that it's cheap, but wouldn't want to bet that the stock will outperform anytime soon.  Think of the poor MSFT shareholders who've seen the share price do nothing for years.  In fact, I think I'd rather own MSFT as they trade at only 9.5 times earnings, have better margins, and pay a 2.7% dividend.

Or better yet, AAPL trading at a 13 forward p/e and taking market share from RIMM.


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#3) On June 04, 2011 at 10:28 AM, buffalonate (45.13) wrote:

The fact that their new phones are available with every operating systems tells me they are desperate.  I think Microsoft eventually buys them to get market share for their operating system. 

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#4) On June 04, 2011 at 11:19 AM, ElCid16 (95.56) wrote:

Think of the poor MSFT shareholders who've seen the share price do nothing for years. 

I wouldn't necessarily call them "poor."  Ten years ago MSFT was trading at a 37 PE, a 15 PS, and I don't think it was paying a dividend.  Investing in a company like that is speculating on a spectacular growth story - which just never happend.

An investment in MSFT now is much different than an investment in MSFT 10 years ago.  Now its trading at a 9.5 PE, 3.1 PS, and a 2.7% dividend.

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#5) On June 04, 2011 at 12:30 PM, JakilaTheHun (99.92) wrote:

I would think of RIMM as the very definition of a "value trap" potentially.  I could be wrong, of course, and your blog makes me a bit more intrigued by them, but I have a hard time ignoring the way they are basically getting destroyed in the smart phone market.

Take a look at this blog:

Blackberry's market share dropped from 30.4% to 25.7% in just three months!  If you go back to mid-10, their market share was at 35%.  So they've lost about 10 percentage points in market share in one year. 

This would probably sting a bit more, but the smartphone market in general is growing so rapidly, so a market share loss in a rapidly growing market isn't bad as it would be in a more stagnant market.

All the same, I'm seeing absolutely no evidence whatsoever that they can compete with Apple or Android over the long-haul.  They still seem to be stuck in this mid-00's mentality.


If RIMM's management showed any sign of making some moves to compete better, I might be tempted to buy in, but they look completely clueless right now. 


I actually think MSFT and CSCO are both better bets. It just seems like once a consumer electronics brand starts going south, there's often no recovery - but maybe RIMM is the exception. 

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#6) On June 04, 2011 at 5:01 PM, portefeuille (98.93) wrote:

A "company" with a P/E of around 5 and "earnings growth" of around 20% p.a. (for the next few decades, hehe ...) is the "EMC stub" (EMC minus cash minus VMW holding).

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#7) On June 04, 2011 at 5:05 PM, portefeuille (98.93) wrote:

#6 see comments #37,38 here.

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#8) On June 04, 2011 at 5:12 PM, portefeuille (98.93) wrote:

June 3, 2011, Worldwide External Disk Storage Systems Market Posts Double-Digit Growth for Fifth Consecutive Quarter, According to IDC

March 4, 2011, EMC Leads External Disk Storage Systems Market for 14th Consecutive Year and Gains Market Share, Analyst Firm Reports

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#9) On June 04, 2011 at 5:20 PM, portefeuille (98.93) wrote:

#6,7,8 As VMW shares are "not really all that expensive" (according to me ...) you could just buy EMC shares, no need to add a short position in VMW if you can "take the volatility" that comes with the VMW holding ...

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#10) On June 04, 2011 at 11:28 PM, TMFBabo (100.00) wrote:

Valyooo, nice list of potential value traps - I believe they all deserve a close second look to make sure they are NOT dead money going forward.  I'd personally put MSFT and CSCO ahead of the others as well.  

I'm intrigued by RIMM, but anecdotally (among my 20s and 30s friends), I don't know a single person that actually wants a Blackberry.  They all want the iPhone or are willing to settle for  Android phones.  I've also recently seen an article that showed some people getting iPhones to work with work e-mail.  RIMM supposedly has dominated the business space, but if it loses power in that niche, I think its business is permanently impaired (deserving a low multiple in turn).

Still, it's so cheap that it's priced for a steady and strong decline in business results.  If RIMM can pull off mediocre results, it deserves to go up.  Ah, the beauty of stocks priced for death.

There are, of course, major problems with the others:

SPLS is the best-of-breed in a dying industry competing with OMX and ODP and I believe all three long-term have had their growth rates seriously impaired.  Even at SPLS, I've been attacked by lonely salesmen in empty stores, hungry to help the 3 customers in the store.  If the best-of-breed operator is struggling like that, the industry is in trouble.  Still, they produce decent cash flow and I'd worry about OMX/ODP before I worried about SPLS.

BBY? I believe it has nothing to offer to me - I often go there, am appalled at the prices knowing I could buy the same things on Amazon, Newegg, or some other site for cheaper, and then leave.  I'll only go if there's a big sale, which does nothing but provide low margin sales and doesn't do much for the bottom line. 

It offers commoditized products while having to deal with all that overhead - I buy most stuff online and when I finally go into the store to buy something (like a TV), I'll only buy when there's a massive sale.  What kind of business model is that? I'm a DIY guy in terms of computers and entertainment stuff, so their people provide no value whatsoever to me. 

Still, I believe the only way BBY survives long haul is to add that value to the in-store experience, so that people would rather go to these brick-and-mortar stores rather than buy stuff online.  

MSFT is not great, either.  Its core Windows and Office segments are under siege by cheaper, free offerings.  If some cheap (or free) office suites can gain traction with businesses, MSFT's core businesses can be impaired. I'm not sure that happens, but it's a real fear and I'm curious to see how MSFT reacts.

Still, I believe MSFT's gaming division is now solidly profitable and doing quite well and its cloud computing software is attempting to disrupt others such as CRM (as opposed to being the disruptee like in its core businesses).  My understanding is that once a company is set up with CRM's stuff, it's somewhat sticky and businesses are unwilling to switch so readily.  Still, MSFT can compete for new customers, potentially impairing growth rates for CRM.  

It's priced for negative growth as well and I bet MSFT produces so much cash and buys back so much stock (at good levels currently) that I can't imagine negative growth rates being the correct amount.  I believe MSFT overpaid terribly for Skype and will probably do another "head scratcher" in the next year or two, but I also look at trailing FCF of over $24 billion.  That's sick.  The stock's priced as if it'll throw away $8.5 billion every year.  I don't think they will waste that much every year...

CSCO? People say JNPR and others are stealing market share.  It's true that the business is under siege, but I'm impressed CSCO has grown earnings and FCF as it has in the last decade while being so poorly run.  It's just now realizing that things such as bureaucratic committees are dumb (oh, really??)

I bet CSCO refocuses itself successfully and fights to keep market share on its core segments.  The previously high gross margins are a thing of the past - there is competition now and I believe a refocused CSCO will not grow negative 2% or whatever is priced into the stock right now. 

The stock tanked when everyone realized CSCO won't be growing double digits anymore, but I personally believe 3% to 5% growth in the medium term will be achieved.  That deserves a higher valuation than the market is assigning right now.

All in all, I'd say CSCO is my favorite, then MSFT.  I don't really like the others, but RIMM has the lowest multiple and I might take a hard look.  I was surprised to see David Einhorn owned some BBY, so I'm slow to write it off completely without knowing why Einhorn likes it - I respect that man. 

I currently own LEAPS on CSCO and MSFT.  I think MSFT is the more interesting one because it has two potential dividend increases in 2011 and 2012, which serve as potential catalysts (which would be awesome for calls expiring in 2013).  

It's interesting to note that many of these businesses were (or still are) market leaders and they have all been disrupted in some way by technology, which moves so rapidly.  There's a certain beauty in a business that can't be disrupted so rapidly by the Internet (see almost every Berkshire Hathaway acquisition).  

This makes intelligently run places like BRK-B or great "next BRK" stocks like MKL, FRFHF, Y, and WTM interesting.  Most of them are trading at low multiples of book, too...

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#11) On June 05, 2011 at 6:16 PM, JakilaTheHun (99.92) wrote:

With CSCO, I think if they could figure out how to sell telepresence better, they could actually do quite well off that.  Their technology is better than any of their competitors, but Umi (or whatever it was) was priced at a ridiculous level relative to competitors.

I also think people are dramatically underestimating the growth potential in many of their markets.  Even if CSCO continues to struggle and lose share, they might be able to hold up much better than people think.  The stock right now is priced as if they continue losing share, their markets move to stagnant growth phase, and they find no new sources of revenue in the coming years.  I'm not saying this is an impossible scenario, but I think it's a relatively good time to buy; I'd rather buy in with no expectations and hope to exceed them, rather than buy in with high expectations that are difficult to meet. 

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#12) On June 05, 2011 at 8:21 PM, TheDumbMoney (67.27) wrote:

RIMM is toast, based on my admitedly anecdotal experience:

My company is planning to allow us all to choose iPhones or Android, for our work-phones, starting in about August/September.  Until now we have been 100% RIMM.  Why?  The key is security.  Since RIMM has always been business-focused, its security is much, much better, whereas iPhone and Android, which started so consumer-focused, no so much, because consumers don't care as much, or so the IT guys tell me. 

My company has just now worked through those very real security issues so that we can go with iPhone and Android.  And I'm sure many companies are just getting there as well.  When that happens, the vast majority of us will switch away from RIMM, instantaneously.  My wife's company has already gone iPhone enabled, and she switched about six months ago.  RIMM is the very definition of a value trap, in my view.

I would rank these stocks as follows:  RIMM, BBY, SPLS, CSCO, MSFT.  I'd be willing to go out on a limb and say RIMM will be bankrupt or Palmed (bought, cheaply) within three years.  RIMM is not a consumer brand (Jakila), and it never will be, and its hold on the enterprise is essentially gone as of this year.   

I suspect the thesis on BBY and SPLS is they will be the 'last-men-standing' in their industries as brick-and-morter stores, and not everyone is going to buy that stuff online. 

As far as CSCO and MSFT are concerned, I don't even think they are in the same league, particularly Microsoft.  Concerns about the cloud (as to both) and margin-compression (CSCO) and re: Apple/Android/pads (Microsoft) are in my view being blown vastly out of proportion, unlike concerns about RIMM.  

In three or four years, I'll be using Microsoft Word on my iPad that I will have bought by then, where it will then be available.  Businesses are fundamentally very happy with Office, and with Windows, frankly, unlike with RIMM.  As far as consumers go, pads will continue to demolish sales of netbooks, a pointless, stupid category of "PC" that should never have been created in the first place, and which I told my wife she was an idiot if she bought in 2009, when everyone was hot to buy them (and as to which Windows revenue is not separated from real PC revenue when Windows revenue is reported, folks....).  As far as consumers buying apple computers now that they're used to the system, only so many people are willing to pay a 30% or more Jobs-markup for inferior computer power just because it looks cooler in the local coffee shop.   Google/Chrome is a greater threat. 

A word on Skype.  Yes, MSFT vastly overpaid.  Yes, I think Ballmer should go.  But in addition to the fact that MSFT will integrate Skype into Azure and Kinect, at least, here's a fun fact I'd be willing to bet most here don't know:  MSFT paid with its foreign-held cash, which it hasn't paid taxes on, and which now it never will.  Unless you think we'll get a foreign corporate tax holiday again anytime soon, that ought to impact your view of the cost-benefit a bit. 

And as Babo pointed out, the Skype acquisition equals about one quarter of one year of MSFT free cash flow.  Meanwhile, MSFT has repurchased something on the order of $70 billion (net of issuances) of its own shares since the end of 2005, with about $20 billion more imminently planned, and grown its earnings faster than the S&P has over this previous 5-year period as well, during the rise of the cloud and Apple/Android.

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#13) On June 05, 2011 at 8:37 PM, Valyooo (33.59) wrote:

Babo, I agree compeltely on staples and best buy

Yeah, i guess...i will probably still buy RIMM if it hits $15 in a few months (doubt it)

MSFT i wouldnt invest in...I would rather buy AAPL, which I think is cheap and will be the first trillion dollar company

 However I would buy MSFT as a trade...if it fell another 15-20%... I just dont want it for the very long haul

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#14) On June 05, 2011 at 9:17 PM, TMFBabo (100.00) wrote:

The interesting thing is that you give that list to 5 different people and they all rank it differently. 

I also doubt RIMM gets to $15 and I'd consider buying it there.

You're right about AAPL - the future (3-5 years out) looks murky, but it looks pretty cheap here.  Minus the large net cash position, it's at a pretty reasonable multiple.  I like companies with warts a bit more (such as some of the names you've mentioned), because you can get things even cheaper.  

@dumberthanafool: Agree on SPLS/BBY being "last men standing" in their industries, but if a certain percentage of would-be customers shop online instead, there go their growth rates.  I feel they can maintain flat sales long haul as long as they're not disrupted by some other flashier competition.  

Flat sales coupled with share buybacks and incremental improvements in distribution and other costs could lead to a modest increase in EPS going forward, but I don't think that deserves a very high multiple (10 to 12 max).  

I agree that the fears surrounding CSCO and MSFT are overblown.  They have been "under siege" for a while now, but they still churn out tons of cash, keep buying back stock, and increasing their earnings and sales over time.  They're not the high-growth tech companies of the past (big surprise). 

I'm more worried about MSFT throwing away cash than I am about CSCO at the moment, because John Chambers is finally a bit rattled by his past poor performance.  Skype does have potential to create valuable network effects and I agree that you have to swing to hit (and you'll invariably miss quite often), but why'd they pay so much?? Argh.  

Google Chromebook sounds interesting.  I figure some people will flock to it, but I won't be touching that thing with a 10 foot pole.  I'm pretty paranoid about Internet security myself (free Wi-Fi? *shudder*) and having to be connected to the Internet to use your damn files is a huge red flag to me. 

Still, you're right that it's a huge threat if enough people disagree with me.  

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#15) On June 05, 2011 at 9:25 PM, Valyooo (33.59) wrote:

The crazy thing about aapl is that ive never seen a company that big  grow earnings that freakin fast...its honestly incredible

but i think steve jobs = aapl

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#16) On June 05, 2011 at 9:56 PM, Valyooo (33.59) wrote:

About staples and best buy... I don;t see any growth possible.  I can only see growth in places where the internet isn't huge yet, but electronics are growing (does that place exist? maybe a small country in Africa?)

I can't buy a compant with no growth unless they are paying a FAT dividend...I'm talking Manuel Uribe fat.  And their growth can't be declining otherwise I don't want to touch it...unless it's 1) for a trade 2) fixable


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#17) On June 05, 2011 at 10:48 PM, JakilaTheHun (99.92) wrote:

I'm more worried about MSFT throwing away cash than I am about CSCO at the moment, because John Chambers is finally a bit rattled by his past poor performance.  Skype does have potential to create valuable network effects and I agree that you have to swing to hit (and you'll invariably miss quite often), but why'd they pay so much?? Argh.  

The other thing about CSCO is that they basically can't spend their cash.  That's not a good thing, but it's something to consider. 

A lot of CSCO's massive cash balance is overseas and they can't bring it back without paying US taxes. 

I still like CSCO in spite of this, but their cash balance is sort of an odd thing. In fact, an economic downturn might create a situation where Congress allows corporations to bring money back to the US tax-free, so that's a potential added benefit for CSCO if it ever happens. 

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#18) On June 05, 2011 at 11:03 PM, JakilaTheHun (99.92) wrote:

As far as Staples and Best Buy go, I'm not totally sure what to think.  I actually think Staples is best of breed in its industry, but internet sales and mass retailers (e.g. Costco) are killing them.

I've thought Best Buy was a crappy company for a long time.  They've been dominant only because the competition has been more incompetent than them. These sorts of companies tend to be the ultimate "value traps", because they can simply be displaced when better run companies come along. 

Best Buy is getting attacked not only from Internet vendors, but also from hhgregg and the mass retailers (e.g. Wal-Mart, Costco). 

Honestly, I see absolutely nothing vital that Best Buy provides to the market.   The expertise level of their employees is low.  You're better off reading online reviews at Amazon.

Their prices are higher than Amazon, Costco, etc. 

Their service is dismal. 

Their stores are not very customer friendly. 

Many of the products they rely on for their livelihood (e.g. CDs and DVDs) are being displaced by digital media. 

I wouldn't be surprised if Best Buy wasn't around 10 years from now. They are going to have to reinvent themselves in a major way to survive.


Between the two, I'd say that Best Buy is in a better industry but Staples is a better company.  Not sure I want to bet on either unless they get considerably "cheaper" than they already are. 


The problem with AAPL is margin compression. AAPL's massive earnings are based on otherwordly large margins from iPhone sales. As the wireless carriers start cutting back subsidies for smartphones and/or favoring Android more, that's going to continue to chomp into AAPL's earnings.  The only reason it's not noticeable right now is because AAPL has brilliantly decided to embark on an exclusivity strategy, where they only allowed iPhone purchases through AT&T; and now they have moved over to Verizon, as well.  


Of all the names mentioned, I'd really only be comfortable with CSCO and MSFT.  I'd probably take RIMM third, simply because any turnaround could result in such a massive swing in the other direction; but I really don't have much faith that such a swing will take place. 

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#19) On June 06, 2011 at 10:27 AM, russiangambit (28.67) wrote:

If I have to pick a value trap (sort of pick your poison) I'd go with Cisco, Nokia or Hewlett. I think Rimm hasn't embraced its value trap status yet and therefore it sill has ways to go down.

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#20) On June 17, 2011 at 1:53 PM, TheDumbMoney (67.27) wrote:

Valyooo.  Hope you didn't actually buy this dog.

RIMM = Toast

Microsoft Exchange 2010 allows companies (which have been RIMM's only customers, basically) to have the same security on iPhones and Androids that until the last year, only RIMM could provide, via its security.  Now everybody in corporate America is switching to iPhones and Androids because they are better. 

I have a blackberry on my hip as I type this, and in August when my company finally lets me, it will become an iPhone.


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#21) On June 21, 2011 at 12:22 PM, TheDumbMoney (67.27) wrote:

Here is an excellent explication of Valyoo's side of this, looking at the numbers. Has me reevaluating myself:

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#22) On September 16, 2011 at 1:25 AM, TheDumbMoney (67.27) wrote:

I refer you back to comments 12 and 20.

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#23) On October 05, 2011 at 1:49 PM, TheDumbMoney (67.27) wrote:

"I'd be willing to go out on a limb and say RIMM will be bankrupt or Palmed (bought, cheaply) within three years."  Comment 12.

We shall see.

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#24) On December 16, 2011 at 2:34 PM, TheDumbMoney (67.27) wrote:

RIMM makes 8-year low today.


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#25) On December 16, 2011 at 3:06 PM, truthisntstupid (77.26) wrote:

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#26) On September 23, 2013 at 2:24 PM, TheDumbMoney (67.27) wrote:

Please see my original post on 6/5/2011, predicting this within three years.   You're welcome.  ;-)  RIMM bought today for only $4.7 billion.  Was probably going b/k. 

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