Shares of troubled Canadian smartphone maker BlackBerry (BBRY) rallied Monday on the back of yet another buyout rumor.
Given the company’s precarious state yet lucrative customer base and technology, plenty of potential buyers are circling the company, yet no bid has yet been firm. However, given the recent uptick in chatter, it seems increasingly likely that one of these rumors will come true sooner rather than later and shoot BBRY stock much higher.
Active investors and traders could look to get long BlackBerry stock in small size or buy longer-dated options to position themselves for a pop higher.
The news on Monday was that a source familiar with the matter said China-based Lenovo Group (LNVGY) might be ready to make an offer for Blackberry as early as this week, for around $15 per share. BBRY stock on Monday closed higher by 8.55% at $10.30.
Being a pioneer of the smartphone, Blackberry for years was the must-have gadget for corporate raiders. As Apple (AAPL), Google (GOOG), Samsung (SSNLF) and others entered the space, however, Blackberry increasingly lost its mojo, leading to a collapse in its stock price. In turn, the company was forced to undergo dramatic cost-cutting efforts, and now BBRY is open to all strategic options, including a company sale.
BBRY Stock Charts
The multiyear weekly chart of BBRY stock shows how shares, from a momentum perspective, bottomed out in summer 2011, then formed a double bottom in summer 2012 and December 2013. While BlackBerry has worked its way off the lows so far in 2014, the bigger-picture price movement is occurring in a narrowing trading range. Given where the company’s strategic options stand, this price action and formation makes sense in that investors are essentially on hold, waiting for news to strike.
The issue with this type of situation is mostly one of timing. Despite the fact that a buyout of BlackBerry makes sense, M&A can take longer to manifest than many investors and traders have the patience for.
On the daily chart, BBRY stock found support last week at its July 31 reaction lows, which tactically could serve as a stop-loss level for investors looking to get involved for a buyout play.
While technical analysis becomes less important in these type of plays, the charts still can offer us risk/reward areas for risk management purposes.
Because the timing of a BlackBerry deal still remains uncertain (despite what the rumor mill is cranking out), traders and investors looking to expose themselves to an upside play in BBRY stock could initiate a small position in the stock at current levels, or buy a slightly out-of-the-money call with at least three months until expiration.
If and when a buyout bid for Blackberry finally does arrive, the stock should get moving toward the $12 area, and possibly toward $15 or marginally higher.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
