March 24, 2014 - Is Now the Time to Invest in Blackberry?
Smartphones are everywhere these days. Every person over the age of 8 just needs to have the latest in technology. But while smartphones are a booming business, Blackberry (BBRY) has not been quite as successful capitalizing on this mainstream movement as Apple (AAPL) and Google (GOOG) have been.
The Apple iPhone and Google Android are market leaders in smartphones, although a number of other phones are still in the running. Blackberry (formerly called Research in Motion) - made and sold 4.3 million phones in the fourth quarter of 2013.
The phone market is very competitive today, and Blackberry definitely had a head start. Blackberry devices are very addictive and users can spend a lot of time on them, but the company has primarily focused on the enterprise or business markets historically. Corporate users like the ease of answering email on the go and when you have the IT department of a large company sold on your product, it makes selling them easier. Blackberry's security is very seure, and if you have been following Edward Snowden's release of documents they are one of the hardest phones for the NSA to crack.
Blackberry stock was an ideal place to profit at the start of the smartphone boom a few years ago. The company had the smartest phones around with people really addicted to them, but it fumbled. Blackberry held tight to its technology and did not license competitors to uses its operating system. Nor did it allow others to control the data networks that operate the system. This may be part of the reason the company lost out in the long term. While competitors liked what they saw, the only way they could have a piece of it was rebuilding from scratch. This caused them to build in a different way and a market that should have been easy for Blackberry to keep a stranglehold on slid away.
The company has seen both its stock and profits slide. Sales are down from $19 billion in 2011 to $11 billion in 2013. Profits have turned to losses as the company that made $6 a share in 2011 lost $1.20 a share in 2013. Sales are expected to drop about 35% in each of the next two years, after a 40% drop last year. The stock has dropped from $80 a share in 2009 to $9.31 a share. The company is expected to lose money all through 2014.
It is true that Blackberry looks like it might be a good candidate for spring cleaning if you still have it in your portfolio. The stock just does not look like it can do anything right these days. However, it is priced at a reasonable level. The stock price is more or less equal to the sum of its parts. This could keep the stock from falling any further. The company has outsourced key production to Foxconn in China and expects to see savings from the cuts. Executives have realized they are losing market share and are making cutbacks to stay profitable and save what they can. I wouldn't necessarily add a new position, but I might look at selling some premiums by selling calls.
The June 2014 9 call has a bid of 1.42 on a stock with the stock trading at 9.55. That means a covered call at that level has 14.9% of downside protection, a 10.7% assigned return rate and a 43% annualized return rate between now and June expiration, which is only 93 days away. This could give you reason to hold on to the stock for a little while longer. The stock may be down, but it is not out just yet. While there are very negative longer-term trends at work, the company is still a major player in a lucrative market. If you bought this stock a few years ago and sell now you are not going to get much for it, but turnarounds are possible in any industry.
Chart courtesy of stockcharts.com
Clearly Blackberry is fighting a losing battle for market share. The company is going to need to make a dramatic shift to become competitive and relevant to the market; but it still has a large client base. While cutting losses is tempting, given the current cost structuring you might find it more profitable to sell calls and to pull in premium on a position most people would probably just write off fully.