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BBRY Stock – What Are the Chances of a BlackBerry Buyout?


BlackBerry (BBRY) is not high on the list of stocks I’m interested in right now. In fact, as recently as July 29, I advised people to sell BBRY stock — and considering shares were around $8 then and are around $7.50 now, that advice seems to have been on target.

bbry stock blackberry stock blackberry earnings bbry earnings blackberry passportBut BBRY stock will eventually be cheap enough that it makes sense — and after briefly dipping down into the mid-$6 range in late August, it appears that investors think the floor is in for BlackBerry.

Part of the reason for faith in BBRY stock is a big bank account with about $3.3 billion in cash and investments — nearly 85% of the current BlackBerry market cap. Other reasons include optimism over its BlackBerry Messenger software and its treasure trove of some 44,000 patents.

But most of all, it’s hopes of an acquisition — and the resulting buyout premium — that has the bulls so secure in BBRY stock.

But should they be?

Battered BlackBerry a Bargain Under $7

If you really are looking for a battered tech stock that will be acquired, first you must have proper expectations.

After recent market declines, it’s increasingly apparent that investors are going “risk-off” and are more reluctant to chase deals. And of course, a company like BlackBerry isn’t necessarily a good addition to, say, Google (GOOG, GOOGL) and its Android biz just because a few vocal bloggers happen to think so.

And most damning of all for BlackBerry buyout hopes, investors must acknowledge rumors of a BBRY buyout that never came to anything — including the 2013 debacle with Fairfax Financial and Prem Watsa, as well as hints of an acquisition by Samsung (SSNLF), Lenovo (LNVGY) and Xiaomi in the last year or so.

For all these reasons, I think it’s safe to say investors should only take a flier on BBRY stock if they are comfortable with aggressive and volatile investments, and if the position is initiated at a very favorable price to hedge against further declines.

To me, that price is $7 a share or less, based on recent lows.

bbry stock chart
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After all, BlackBerry remains significantly under both its 200-day and 50-day moving averages — and given the steep declines from May highs around $10 a share, it’s unlikely BBRY will see the charts turn favorable anytime soon.

But it’s undeniable that BlackBerry has something to offer — $3.3 billion in cash and investments over some $1.5 billion in debt is hardly cause to fear for the company’s collapse. Furthermore, at the end of fiscal 2015 in February, BBRY had over $900 million in net operating cash flow, showing this is a company that is still functioning pretty well.

Say what you will about the death of BlackBerry’s smartphones, but it’s hard to argue a company with this kind of capital structure is going bankrupt anytime soon.

Furthermore, BlackBerry has some attractive elements, including software expertise via its BB10 and QNX operating systems relating to wireless technology, and its much-hyped BlackBerry Messenger service that has been buzzworthy in light of messaging apps like WhatsApp or Snapchat getting so much press lately.

It’s aggressive and perhaps overly optimistic to think BBRY stock is a slam dunk as an acquisition target, so I am not a shareholder and I’d warn all prospective traders to prepare for the worst if they go this route.

But at under $7 a share, if and when BlackBerry stock declines back to its recent lows? Well, that’s an aggressive but reasonable play to make on hopes of a buyout in the next several months.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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Article printed from InvestorPlace Media, https://investorplace.com/2015/09/bbry-stock-blackberry-buyout/.

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