Apple / RIM pair trade strategy may still make sense
How’s the smartphone “pair trade” working out?
Three months ago, when I was fretting about Research In Motion’s market positioning (see prior post “Worried about RIM” Oct 29-09), I mused that one investment idea for tech saavy folks was to own both Apple (AAPL:Q) and Research In Motion (RIMM:Q) shares. Why try and pick the winner between the iPhone and the Blackberry? Just own both.
It wasn’t like one of them was going to get wiped out any day soon.
With the breathless excitement this week over the iPad, which has nothing to do with smartphones mind you, the question must be posed: how’s that trade working out so far?
October 29, ’09: Apple – US$192.40; Research in Motion – US$61.36
January 29, ’10: AAPL -US$199.29; RIM – US$64.60
Over the past 90 days, Apple shares are up 3.6%, RIM shares are up 6.3%, as compared to the Dow’s 3.6% gain and the Nasdaq’s 5.8% rise. Not a very compelling stat so far, but with Apple shares down more than US$8 yesterday that shouldn’t come as a surprise. You were better off owning both, mitigating your risk, rather than just one or the other.
Ninety days into the notional strategy, you’d likely have felt pretty chuffed when Apple’s stock hit US$215 on the iPad news. With Apple’s Q2 guidance coming in above Research Analyst’s estimates, the ride may not be over, even if 19x EPS isn’t cheap as compared to RIM’s 16x multiple.
But Apple’s got the consumer ‘mo right now, which is why there aren’t too many unhappy Apple shareholders this week. For RIM, several Canadian-based research analysts have come out with reports this week that can only be summed up with the working title of “That’s all you got? Bring it on!” And they’re referring to HTC, Nokia and the like.
At Paradigm Capital, for example, it was a more polite “Competitors Fail To Outshine RIM”:
- Several major handset OEMs and smartphone vendors reported results this week and, in our opinion, all failed to highlight more intense competition for RIM.
- From a macro perspective, the outlook remains strong, Nokia reiterated its 10% unit volume growth forecast for 2010.
- While sentiment on the stock remains negative, competitor results combined with RIM’s strong Q3 results and Q4 guidance indicate to us the “data” continues to support our view RIM remains a leader in the smartphone market.
If you still have the stomach to invest in a market that has rallied 60% from the bottom, the Apple / RIM pair trade strategy may still make sense for people who are comfortable with volatility and want long term exposure to the irreversible growth in global smartphone penetration.
MRM
(disclosure – I own RIM; and, this is not a stock recommendation)
This is just a pair of good trades, a pair trade would be long one name and short the other. A mean reversion alpha generating strategy between two names with a high statistical relationship that has broken out of that relationship and you are betting that it will return. In this case, AAPL has gotten out a head of RIMM, so if you were confident in the statistical and fundamental relationship, you would buy RIMM and sell AAPL. I am not so sure the fundamental or statistical relationship is strong enough that you would want to make that bet. Probably better off, as you say, holding both names or selling if you don’t believe in this whole mobile internet fad.
AT
Right you are. It just had a nicer ring to it.
MRM