With BlackBerry (NYSE:BB) stock rebounding strongly on high trading volume, I think very good news for the company will soon be reported. BE stock climbed 5.2% on Aug. 23 to $10.14, far outpacing the gains of the S&P 500 and Nasdaq exchanges. It’s up nearly 10% today.
Meanwhile, BlackBerry could actually greatly benefit from an event that appears to be adverse to its interests. Additionally, a key research firm recently became much less bearish on on BB stock. These factors could continue to push the stock upward in the coming days.
A Strong Rebound Bodes Well for BB Stock
In addition to BB stock’s gains, the 8.7 million shares that changed hands Monday represented one of its highest volumes of any trading day since July 29. Trading volumes have far surpassed that today, reaching more than 23 million at time of publication.
In July, when meme stocks were much stronger and BlackBerry was a Reddit favorite, its shares’ trading volumes often soared way above 8 million.
But for most of August, as meme-stock investors weakened meaningfully, BlackBerry’s daily trading volumes have generally trended around 4 million to 6 million.
The strong trading volume on Aug. 23 and today came even as meme traders remained fairly weak on the stock; BlackBerry’s time in the Reddit sun has already come and gone. Instead, the increase was likely carried out by institutional investors who obtained some little-known information about the company.
I believe these investors learned BlackBerry will soon close the sale of its patents at a higher price than most expect. Alternatively, it may be set to benefit from provisions in one of the two major bills being considered by Congress.
I’ve previously written that I think the Canadian company is going to sell a high number of its patents to Facebook (NYSE:FB) for more than most on the Street expect. Based on statements made by BlackBerry CEO John Chen, I had previously expected the transaction to close by July 31.
That obviously did not happen. But now, assuming Facebook wants as little publicity as possible for the deal, I expect it to be announced sometime shortly before or after Labor Day (I also wouldn’t be shocked if the transaction is divulged on Labor Day itself.)
As far as the bills in Congress, given the recent cybersecurity attacks on the U.S., I think there’s a 50% to 75% chance the infrastructure bill or the budget will include significant funds for cybersecurity.
As a leading provider of cybersecurity solutions to the U.S. government, BlackBerry is well-positioned to benefit from such a provision.
How BlackBerry Could Benefit From “Bad” News
Earlier in August, BlackBerry disclosed that versions of its QNX operating system had developed a flaw that enabled them to be hacked. According to Politico, the flaw “has left two hundred million cars, along with critical hospital and factory equipment, vulnerable to hackers.”
But crucially, the issue only affects versions of QNX that were installed before 2012. Consequently, if BlackBerry charges even $2 to $3 per machine to provide a new version of QNX, its could easily generate a revenue lift of $100 million to $200 million this year and again in 2022.
That would be a needle-mover for BB stock. The company’s 2020 sales came in at $1.1 billion and its EBITDA, excluding certain items, was $60 million.
The situation reminds me of Microsoft’s (NASDAQ:MSFT) policy of ending support for older versions of Microsoft Office. The software giant will typically warn users that, after support ended, they could be vulnerable to security issues if they continued to use the software.
This policy was, of course, negative for Microsoft’s customers. But it had the effect of boosting the company’s financial results because hundreds of thousands of companies and consumers bought new versions of Office.
A Key Upgrade Boosted BB Stock
On Aug. 15, after speaking with two executives of BlackBerry subsidiary Cylance, longtime BB stock skeptic Canaccord Genuity raised its rating on the shares to “hold.” Importantly, the firm’s assessment was one of the more bullish notes I’ve ever seen accompanying a “hold” rating.
Canaccord expects the growth of BlackBerry’s IT security business to increase, driven by its “differentiated AI-driven data lake approach.” The firm added that the company’s growth would rise even further if the patent deal goes through.
While Canaccord cautioned that it’s waiting for more concrete indications of growth before upgrading the shares, I think its note was quite bullish overall.
Blackberry’s recent rally amid high volume, which occurred when most meme stocks remained relatively weak, suggests it’s close to divulging a patent deal worth more than expected. Meanwhile, the company could get another windfall from its QNX updates, and its cybersecurity business appears to have greatly improved.
What’s more, the beta version of the automotive app store that it’s developing with Amazon (NASDAQ:AMZN) is due out in October. Given all these points and BlackBerry’s still-low market capitalization of about $6 billion, BB stock is a definite buy for growth and value investors.
On the date of publication, Larry Ramer held a long position in BB.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.
