3 Stock Picks: RIMM, WAG, MEE

BlackBerry maker Research in Motion (RIMM) couldn't seem to get out from under Apple's (AAPL) shadow Monday. Investors bid down RIMM's shares after the iPhone maker said it has sold more than one million of its 3GS handsets in less than a week of its release.

The selloff is the second in a row for Research in Motion, which reported its second-quarter earnings Thursday and issued an outlook that left investors disappointed. The company reported earnings of $1.12 a share for the quarter ended May 30, compared with earnings of 84 cents a share for the same period a year ago. Analysts had expected earnings of 94 cents a share for the quarter.

CEO Jim Balsillie said BlackBerry orders rose by a third, and said his company expected to ship between 8.1 million and 8.7 million smartphones in the August quarter, up from 7.8 million in the just-completed quarter. Balsillie attributed those gains to a growing number of consumers who are buying smartphones like the BlackBerry for personal instead of business-related use.

"I think we have demonstrated a lot of surging strength in the last two quarters, and I am not seeing anyone here take their foot off the gas," he said on a recent conference call.

First Global analyst Davina Mehtra said Monday that despite the RIMM CEO's comments, management has provided a comparatively dull outlook. The analyst also says that RIMM may be a victim of its own success. For fiscal 2010, 80% of RIMM’s net subscriber additions came from the consumer sector, which now accounts for over 50% of its overall subscriber base. That means widespread demand could actually start driving prices down and cutting margins, a potential blow for a company that’s wholly dependent on smartphones.

Another potential blow: Competition from Apple. Apple's announcement about the iPhone 3G S's sales Monday had some investors questioning RIMM's ability to keep up.

Research Capital analyst Nick Agostino wrote Friday, though, that RIMM has a technical advantage that will help keep the company a major contender as more consumers opt for features-laden smartphones.

"At a time when demand for location-based, multimedia and Internet services is only beginning to ramp, network constraints will only get worse. Not surprisingly, Apple’s iPhone is already constraining AT&T’s network," he wrote.

"The BlackBerry platform was designed to minimize network congestion and will only continue to see increased carrier support as carriers succumb to this realization."

Bottom Line: Hold
This stock will surge when employment picks up, as these devices will take on a heavier share of corporate IT needs, but that won't happen soon.

Strong prescription drug sales weren't enough to keep drugstore chain Walgreen (WAG) from reporting worse-than-expected earnings for its fiscal third quarter -- or from keeping investors from selling off the company's shares Monday.

The Deerfield, Ill.-based company earlier reported earnings of 53 cents a share, lower than its 58 cents a share earnings of a year ago. Wall Street analysts on average expected 56 cents a share.

Prescription drug sales accounted for about two-thirds of total sales and grew 8.2% overall, and 3.8% on a same-store basis. Yet despite those gains, storewide same-store sales rose only 2.8%, partly due to its increased sales of cheaper, generic drugs and weak sales outside of the pharmacy.

"We continue to see consumers save more, use less credit and spend closer to payday," said CEO Greg Wasson Monday on a conference call. He said the company plans to slow the pace of store openings from the current 9% a year to 2.5% to 3% in fiscal 2011.

Pali Research analyst Robert Summers anticipated the drop-off in margins, noting that consumers can more easily cut back on goods like beauty aids than they can on prescription drugs. Unfortunately, those "front-end" items that consumers are paring back on also carry higher margins than prescription sales.

Bottom Line: Hold
This defensive play will take some more hits, but is in a relatively solid position for a reduced spending environment.

Coal producer Massey Energy (MEE) saw its shares fall by double digits in midday trading Monday as part of a broader commodities-based selloff sparked by a stronger dollar and falling energy prices.

The third-largest domestic coal producer, Richmond, Va.-based Massey is one of a number of large mining outfits suffering from the fizzle in the recent commodities and energy boom. Coal prices tend to move in relation to both oil and natural gas prices and as energy prices have fallen so have coal prices. Coal prices are also vulnerable to fluctuations in the dollar, which can impact demand from overseas.

Massey, which like other U.S. coal producers, last year rushed to fill a void in steel production-grade coal in Europe. That coal was being used to meet the needs of energy-hungry China and India, but demand in those markets has since declined and thanks to the stronger dollar, many U.S. producers are being pushed out.

Michael Tian, an analyst at Morningstar, says the huge commodity run-up of 2008 had to have some limit. "The global economy fell apart and demand went down," he says. "This year, you've had basically a massive inventory overhang, and that's combined with reduced demand."

Massey is still trading near its 52-week high of $19.85, opening the session at $19.36 a share.

Bottom Line: Hold
Coal isn't as sexy or volatile as oil, but there's widespread demand. There may be a buying opportunity later when the world-wide economic recovery is easier to evaluate.