Stay the Course to Dow 10k and Buy Research in Motion (RIMM)

September 11, 2009 by Kenneth Reid

The S&P 500 posted a new closing high for the year on Thursday and the major indices are now entering the “speed zone” I have previously discussed. A speed zone is a previous area of trading where price moved very quickly. These areas provide very little price resistance when they are traversed a second time, in the opposite direction. My target of Dow 10,000-10,300 should be hit soon. Stay the course.

Meanwhile, check out Research in Motion (RIMM).

Smartphone sales are growing at a 25% annual pace according to Gartner, while the overall mobile phone market is actually saturated. 220 million smartphones are expected to be sold in 2010, up from 175 million units this year. It used to be that RIMM owned the smartphone market, but RIMM’s edge has been heavily challenged in the consumer market by Nokia and by Apple, with the iPhone. In general terms, Nokia and the iPhone dominate the market for casual use, while business professionals rely on the Blackberry.

One reason RIMM stock fell from its lofty heights last year is that investors were concerned about burgeoning competition in the corporate sector. RIMM has a 20% global market share, but a 60% share of the lucrative corporate market. The good news for RIMM is that the corporate niche is by no means saturated. One analyst estimates that the addressable smartphone market has less than 10% penetration.

Bottomline: Fears of RIMM losing market share to the iPhone or to Nokia appear unfounded. With Verizon’s strong network and marketing muscle, I think RIMM will be making inroads into the consumer niche and will continue to dominate the corporate market. I am ‘pounding the table’ on the stock. Shares have broken a year-long downtrend line. Target $120, if the market can stay reasonably healthy.