RIM: Now a trader's stock

November 29, 2012

Research In Motion Ltd. is again on the move, this time because of an upgrade from an analyst at Goldman Sachs on Thursday to a "buy" recommendation. But apart from moving on analyst opinions, saturated coverage by the media and a reappraisal of the company's ability to survive in the smartphone market, the stock now seems to have attracted the attention of traders – nimble folk who can buy and sell the same stock a number of times over the course of a single day.

How else can you explain the spike in volume? Over the three full trading days this week, trading volume in New York has averaged more than 75 million shares a day – with Thursday on track to beat this number – or more than three-times the average over the past 200 days.

"It's totally a trading stock," said Phil Pearlman, executive editor of StockTwits, a platform that allows investors to comment and discuss stocks.

"They're looking for volatility and they're looking for liquidity. They need a stock that's moving and a stock that they can get in and out of, without moving it."

RIM has seen its profile boosted over the past week, partly because of positive buzz over its upcoming platform, BlackBerry 10, which some observers believe could put the company back in the smartphone race; and partly because of analyst enthusiasm. Apart from the Goldman Sachs upgrade, which included a price-target boost to $16 from $9, Scotia Capital, CIBC World Markets, National Bank and Jefferies & Co. have boosted their recommendations or target prices or both.

Now, with traders taking over, are the fundamental reasons for investing in RIM – perhaps some sort of long-term belief in the BlackBerry – out the window? Mr. Pearlman has a good answer to that:

"The fundamental value of a stock is an imaginary point on the chart. Nobody can pinpoint it exactly," he said. "Everyone has their models and opinions – the classic being discounted cash flow. But it's an elusive, unknowable number.

"Trading can oscillate the value, but it can move it away from [fair value] or towards it. It can increase volatility or it can decrease volatility. But it does increase liquidity."

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