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Are the Tables Turning on Apple and BlackBerry?

January 29, 2013

Stock of the Day

The stakes are higher than ever for consumer electronics companies. With the payroll tax hike back in effect, 77% of all workers are feeling the pinch. For the month of January, consumer confidence has plunged to a yearly-low. Make no mistake: The times are changing for gadget companies. The one-two punch of lower take-home pay and dwindling consumer confidence will make it tougher to match last year's blowout performance.

So two bellwethers are taking matters into their own hands by shifting their focus back to business clients: Apple Inc. (AAPL) and Research in Motion Inc. (RIMM). Will this strategy pay off? Full details ahead.

The Biggest iPad Yet

This morning, Apple Inc. unveiled a souped-up version of its latest iPad. At 128 gigabytes, this premium version will have double the memory of the iPad 4—and, starting at $799 for the Wi-Fi model, a premium price tag to match. Apple admitted that this iPad was geared towards corporate users, who are less price-sensitive but have large appetites for data. Other than that, the device will have the same specs. Shares of AAPL are rebounding modestly today following Apple's recent mixed earnings announcement but it will take more to recover last week's losses.

In the first quarter, while sales rose 18% and the company sold a record number of iPads and iPhones, the company missed the consensus sales estimates. On top of this, Apple management forecast sales below the Street view; since last week's earnings announcement the analyst community has cut its third-quarter earnings forecast by 12%. So I currently have AAPL down at a hold; while I am looking forward to AAPL going ex-dividend next Thursday, February 7, I want to wait for the dust to settle before removing it from my Watch List.

The Bolder, Business-Friendly Blackberry 10

Research in Motion Inc. is also dominating headlines today as everyone asks: Will the Blackberry 10 be a game changer for this struggling company? After all, this model will have the BlackBerry Balance, a technology that allows the device to have two sets of applications and data—a secure system for work and a personal one for family.

But from where I'm standing, it's not likely. Despite its recent pullback, Apple still has an unshakeable hold on the U.S. smartphone market—commanding 48.1% market share. By comparison, BlackBerry holds just 1.6% of the American market. Converting Apple and Android users to BlackBerry is a tall order, and even with better software and more powerful hardware, the Blackberry 10 may not pull it off.

I actually covered RIMM in a recent Stock of the Day and I haven't seen anything to change my stance since then. In a nutshell, there are far too many problems on this company's balance sheet and while buying pressure has improved, I still consider RIMM a hold. While tomorrow's press event could reinvigorate the company, it's too soon to tell whether the BlackBerry 10 launch will actually translate into sustained sales and earnings growth. This quarter, analysts are forecasting a 32% drop in sales and a 136% in earnings so I recommend that you hold off on adding RIMM for now.

The Bottom Line

The changing market necessitates that we keep close tabs on each of our companies. Especially in the tech sector, a company's fortunes can change on a dime. Yesterday's big winners could gap down while last year's underdogs come back in full force. That being said, I strongly recommend that you use my Portfolio Grader tool to its fullest extent. This stock-screening database is updated each and every Sunday so you'll want to bookmark this page for easy access. By sticking to the highest-rated stocks week-after-week, you'll be better able to navigate the choppy market we're in right now.

Sincerely,

Louis Navellier

Louis Navellier

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