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Within the stock market we continue to overweight the cyclical sectors of the market, where expectations are extremely bearish and valuations are at cycle lows. Many stocks in the Industrial, Technology and Materials sectors are trading at 6-8 times current earnings levels while the defensive sectors of the market (i.e. Utilities, Telecom, Consumer Staples) trade with earnings multiples in the mid-teens despite having slower growth rates. Investors are paying far too much for safety in our view while ignoring the potential upside in the rest of the market due to shorter-term fears about the economy.
It was the kind of buzz beleaguered BlackBerry maker Research In Motion Ltd. would ordinarily dream about. Thousands of Indonesians jammed into a glitzy shopping mall Friday to get hold of the first BlackBerry Bold 9790s being sold worldwide. But, fearing a riot, hundreds of police were deployed outside, tying up traffic in the heart of the capital for hours. With a 50 per cent discount on the $540 phone for the first 1,000 buyers, lines started forming in front of Pacific Place mall on Thursday night. By daybreak, impatient shoppers started rattling the gates. And when rumours spread that the new smartphones – commonly known as Bellagio – had already sold out, the crowd of 3,000 went crazy. Several people fainted in the crush. Indonesia, a country of 240 million people, has experienced a come from nowhere tech frenzy in recent years. With six million users, BlackBerry dominates the smartphone market in the sprawling Southeast Asian country as they do in many other emerging market economies. While RIM’s stock continues to act like nobody will ever buy a Blackberry again, the reality seems to be something totally different with Blackberry still growing at better than 25% outside of the U.S., a subscriber base of over 70 million users, a substantial and valuable patent portfolio, cash on the balance sheet, strong cash generation and very strong initial reviews on the new 7.0 software operating system on the recently released products. The company will be reporting results in mid-December and we continue to expect a sharp increase in deliveries this quarter for the first time in over a year. The company’s Blackberry servers still basically ‘own’ the corporate market as well due to higher levels of security and multi-functionality. The recent announcement that those servers will also soon be able to support non-Blackberry devices makes them even more valuable to firms that have multiple device users. Trading at less than four times current annualized earnings, the stock valuation really does seem to be reflecting an extremely negative growth profile.