While it wasn’t a household name like Warren Buffet, as we speculated recently here in Cantech Letter, a noted value investor has begun to buy shares in Research in Motion (TSX:RIM).
In the quarter ended June 2011, The Yacktman Fund, an Austin, Texas based mutual-fund that bears the name of its founder, Donald Yacktman, and manages just under $9 billion, opened a new position in RIMM in the June 2011 quarter, with a $71 million purchase.
Shares of Research in Motion have been battered of late. On the TSX, the stock fell from a high of $68.92 on February 18th, to a recent low south of $24. While the stock is barely one-sixth of its 2008 high of $148, the company has more than tripled its revenue in the same time frame; from just over $6 billion in fiscal 2008, to nearly $20 billion in fiscal 2011.
Some pundits say RIM is a classic “value trap” a stock that has experienced a large price depreciation and is mistaken to be a value stock. Others, however, say there is genuine value in the beleaguered Waterloo company, which is now trading at a price to earnings ratio of just 4.02, has 17% of its market cap in cash with no debt, and is trading dangerously near one half of one times sales. Paradigm analyst Barry Richards, who in May had a $72 target on RIM noted at that time that the number was just ten times next year’s earnings, a figure he considered “ridiculous”
While the street has seemed to grow more negative on the prospects of Research in Motion by the day, Yacktman’s past performance suggests he would be undeterred by the string of bad press. In a recent interview with the The Wall Street Transcript he pointed out that the “ability to buy into discomforting news is a function of having a really good understanding of what the business is and what its value is.”
Nor, it seems, would Yacktman, who was voted Portfolio Manager of The Year by Morningstar in 1991, be swayed by the prospects of another downturn. While the $3.5 billion Yacktman Focused Fund has returned 242% over the past decade, and the larger Yacktman Fund has returned 213% over the same time frame, the fund really made hay when the markets collapsed, after the dot-com bubble and the 2008 crash. Both Yacktman Funds are rated five stars by Morningstar .
So is RIM, which is facing an unfamiliar amount of pressure in the increasingly competitive global smartphone market, just a flier for the fund? Donald Yacktman’s son, Stephen, who co-manages the fund with his father, insists the fund simply does not take leaps of faith.
“For our shareholders, it’s not a function of making 12% a year. It’s about how we got to the 12%,” he told Robert Holmes of TheStreet.com “It matters that you didn’t take massive, outsized, leveraged risks. It matters that it’s not one big, giant position. In other words, the performance needs to be stable in a fairly diversified way so you don’t need to wake up worrying.”