RIMM: BP 2010 Redux?

Totally different industries, headquarters an ocean apart, and stocks plagued by completely opposed idiosyncratic factors.  So what, pray you, do these stocks have in common?

I don't blame you for asking yourself this question after reading the title of this entry, but bear with me - it may well be worth your while. As I am sure you all remember, BP's Macondo well blew out in late April 2010 and leaked uncontrolled throughout the summer, in what turned out to be the largest oil spill in history. To no one's surprise, BP's stock was pummelled as a result. However, its price performance over the course of the disaster was somewhat surprising in that it levitated in early Q3, even as the disaster dragged on without a solution in sight - see chart.

So what happened here? I recall quite clearly that there was no news justifying a 30% appreciation during the month of July. Therefore, it appears to me that institutional investors dumped this stock ahead of quarter-end, anticipating having to present fund holding to investors and not wanting to have to defend holding this environment-trampling dog of a firm. As we transitioned into Q3, the sellers were exhausted and investors who had done their homework and did not face the same transparency requirements (read: hedge funds) stepped in and began snapping up this stock, which proceeded to return 30% over the next month.

Now let's have a look at RIMM's chart: 

So now it's my turn to pose a question: Who's will be left to sell heading into Q3? With a forward CFO yield of nearly 25% (based on the firm's reduced guidance), it appears that there is upside potential here (admittedly not as large as in the case of BP).  Therefore, a long position with a tight stop strikes me as a trade with an attractive risk-reward ratio.

Clearly there are very important differences between BP in 2010 and RIMM today. The former was a company with a strong core business which had a massive NPV-negative event, while the latter's massive NPV-negative event was weakness forecast in its core business.  I am not here to claim that RIMM is a strong long-term investment - that depends on whether Mr. Balsillie & Co. manage to right the ship. However, I do think that there is a good short term trading opportunity here for a10-20% upside.

Disclosure: I went long RIMM today.