What struck me most about my first trip to Europe was the
popularity of mobile phones.
It seemed everyone had one and was talking or texting while
walking down the street. I look back on this experience as a
glimpse into the future.
Just a few short years later, the same phenomena occurred in
the United States. Today, landlines are becoming a thing of the
past while even the majority of preteens own or use mobile
phones. Nowhere has this growth been more dramatic than in the
smartphone sector. These devices have become a ubiquitous part of
our culture. Many people wouldn't even consider venturing outside
without their smartphone.
The rise and fall of the companies producing these addictive
devices is just as fascinating as their rapid rise to become an
indispensible part of most people's lives. Once-popular companies
such as Palm and
were among day traders' favoritestocks for quite some time. Those
names have since fallen to competitors such as
Apple (Nasdaq: AAPL)
We all know the benefits ofinvesting in the top-tier
smartphone makers. However, there is a special situation arising
in one left-for-dead manufacturer.
I'm talking about
BlackBerry (Nasdaq: BBRY)
(previously known as Research in Motion).
This Canadian-based company led the smartphone revolution with
its line of corporate-user-focused BlackBerry smartphones. But
over the past several years, the company has been left in the
dust by competitors.
In fact, this former high-flying company'sshares were knocked
down into the $6 range back in September. My purpose here is not
to talk about why or how this happened, but to explore a real
opportunity toprofit .
||With amarket value of more than $5 billion, along with
its $3 billion incash and nodebt , Blackberry has become
aprime takeover target .
The Bad News
In the latest quarter, BlackBerry only shipped 2.7 million
BlackBerry 10 devices -- missingWall Street expectations by a
disappointing 22%, or 600,000 units. Not to mention,gross margin
dropped dramatically the first quarter -- from 40% down to
The Good News
With a market value of more than $5 billion, along with its $3
billion in cash and no debt, Blackberry has become a prime
Analysts at Jeffriess have the takeout price for BlackBerry
pegged at $15 per share with a target price of $18.
Sparking thisspeculation is the fact that BlackBerry's largest
shareholder, FairFax FinancialCEO Prem Watsa, recently resigned
from BlackBerry'sboard of directors due to a conflict of
This couldmean Watsa has plans to take the company private. He
has been exploring options withprivate equity firms to facilitate
thebuyout . BlackBerry has formed a committee to explore a
potentialsale . This news sent shares surging more than 10%.
Shares have rallied since August 1 on the buyout possibilities
prior to hittingresistance in the $12 range. The share price has
since dropped back to $10 prior to bouncing off of thissupport
Most interestingly, is Timothy Dattels, who chairs the
committee to explore options for the company. Dattels is also a
senior partner at TPGCapital , which is a $57 billion
In addition, a possible bidding war could break out with the
value of BlackBerry'spatent portfolio and enterprise assets,
potentially pushing shares above $20.
Risks to Consider:
BlackBerry devices have fallen out of favor with many
consumers. No matter how the company innovates, it seems to miss
the mark. The possible buyout is very speculative and mostly
based on circumstantial evidence. While there is the potential
for solidupside , investors need to exercise caution, as
thisstock remains extremely risky.
Action to Take -->
I would be a buyer of BlackBerry on a breakout above $11. If
shares manage to break this level, the 200-day simplemoving
average is the next resistance level in the $13 range. If the
rumours of a buyout start to turn into actions, shares could
reach $15 to $20 within the next 12 months.
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