RIMM/AAPL -- its the future that matters

In 2002, during the depths of the bubble burst, one could have purchased both Apple (AAPL) and Research in Motion (RIMM) for around $6 per share. With the two at $137 and $228 respectively as of Friday's close, either would have been wise purchases.

Many would look at these 2 stocks and say that they have missed them -- better off looking for something that has not done as well. The truth is that one must always look to the future to determine whether an investment is a good idea or not.

Estimates for RIMM's current fiscal year are almost $6 per share in earnings. So in 2002, anyone could have paid 1 times FY 2008 (FEB) earnings for RIMM. Obviously no one thought they could earn anywhere near that much in 2002 otherwise the stock would not have sold at $6.

Will the next 6 years be as good for RIMM as the last 6? unlikely. That doesn't mean earnings won't grow faster than most other stocks and that doesn't mean we can't have higher confidence in RIMM's future earnings estimates than other stocks.

Investing is about predicting future earnings power of a company and comparing that to the expectations embedded in the stock. You make the most money where the difference between those two is the greatest.

What if I told you that RIMM produces that $6 of earnings on just 1% market share of the handset market and that they could easily reach 5% or more in the next 5 years. What if I told you that RIMM earns roughly $6 per blackberry subscriber per month in service fees in addition to the profits they earn on the sale of blackberry units. That's a nice annuity stream isn't it? I can envision a scenario where RIMM's earnings 5 years from now were around $30 per share and that the stock is only trading at 7.5x those estimates -- a bargain.

Now I could also paint a scenario where RIMM's key attribute -- mobile email -- becomes commoditized to the point where everyone offers it (Apple, Nokia, Motorola, Samsung) using their own software standards or at least a non RIMM standard. At that point RIMM may not be able to earn the $6 they are currently earning in 5 years. That would make the stock very expensive.

Apple has much the same profile -- between iPods, Mac's, iPhones, iTV, etc. their earnings power could be significantly greater than today's numbers -- several times higher. or they could begin to miss product cycles and their innovation run could come to an end.

The key is to have some edge -- to be able to tell with some degree of certainty what scenario is the right one for a stock you are considering. Right now I don't know the answer on AAPL or RIMM. But I do know that EVERY smart phone, regardless of who makes it, will use TSRA's packaging technologies to enable the small form factors required.