Research in Motion, a far superior company, is cheaper than both Motorola and Nokia, Cramer said Tuesday. Investors should buy RIMM now because that discount won’t last.
Look at the numbers: RIMM trades at just 12 times forward earnings with a growth rate of 25%. Nokia ? Fifteen times earnings at 12%. RIMM offers twice Nokia’s growth but has a cheaper price-to-earnings multiple. That’s too good a hiccup in valuation to overlook. Motorola is virtually off the charts with a 72 multiple despite Wall Street expectations the company will earn just 6 cents a share next year.
RIMM’s been taking share from Nokia and Motorola for the past four years, Cramer said. A 6% piece of the handset market in 2005 has grown steadily to an expected 14% in 2008. The Consumer Electronics Show proved that 3G smartphone sales are still strong despite the recession. So it’s no wonder that Verizon can’t keep RIMM’s latest models, the Apple iPhone-killing Storm and the Bold, in stock. And Research in Motion, unlike NOK and MOT, is expected to grow revenues this year.
How do Nokia and Motorola stack up?
Nokia just cut its 2009 forecast for handset volumes. The emerging markets that seek out the company’s cheaper phones are slowing down, taking NOK’s performance with them. This low-cost strategy just makes the company more vulnerable to the demo that suffers most, and cuts back on things like extra phones, during a recession. Also, Nokia may control 60% of the overall market, and even expects to capture more regardless of shrinking sales and earnings, but there hasn’t been enough innovation to keep customers engaged. Apple, RIMM, and now Palm, with its new Pre smartphone, are drawing more attention.
As for Motorola, this company’s handsets have been in decline for some time. In 2006, handset unit growth clocked in at 49%. A year later, sales dropped 27%. And 2008 saw another 34% loss. Motorola’s overall market share fell to just 8% in 2008 from 21% in 2006. Cramer doubts a few new products will reverse this trend. So while at first glance the 44% increase in MOT stock since the company hit its 52-week low of $3 looks attractive, it belies much deeper problems at the company.
RIMM has pulled back just over $100 to $46.27 because of this recession and some concern about the firm’s gross margins, and the Street’s cut earnings estimates over the last six months as well. So Cramer thinks that by now any bad news is baked into the stock. When you consider that RIMM used to fetch double its growth rate, and is now trading at just half that figure, it’s easy to see why he’s so bullish.
So sell Motorola and stay away from Nokia, Cramer said, but buy RIMM on the cheap. It’s only a matter of time before Research in Motion is once again the most expensive of the bunch – and rightly so.
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