Short-squeeze rally could drive BlackBerry to $20, says fund manager

If it can beat the street’s expectations later this month, the huge short position currently held on BlackBerry (Stock Quote, Chart, News: TSX:BB) could set it up for a big short rally, says one fund manager.

Michael Sprung, President of Sprung Investment Management appeared on Market Call Tonight with host Mark Bunting Wednesday to talk about Canadian large cap stocks.

With earnings due this month, Sprung says there is a realistic scenario in which BlackBerry could experience a “fairly significant” short-squeeze rally that would drive the stock to $20.

BlackBerry will report its Q1, 2014 results on Friday, June 28th, before market open.

Bunting noted that in the United States, more than 38% of total BlackBerry shares are currently shorted.

When investors sell a stock short they are betting they can buy the stock back at a lower price. The profit in the trade comes from the difference between the price at which they sell and the price at which they buy the stock back.

Sprung warns that while BlackBerry appears cheap, the are caveats.

He says BlackBerry has a done a wonderful job of reinitializing itself in the market, but the tech space is particularly unpredictable and fast moving. He says it could be argued that BlackBerry has the appearance of a value stock right now, but says the space is difficult to peg because you are dealing not just with technology but “fashion and consumer whims”. He suggests investors playing the short-squeeze scenario do it with money they can afford to lose.

Shares of BlackBerry rallied yesterday after Societe Generale analyst Andy Perkins changed his rating to BUY and upped his target price on the Waterloo-based company to $17, from his previous $13. Perkins said his channel checks suggested that sales of BlackBerry 10 handsets could exceed five million units in Q1.

At press time, shares of BB on the TSX were up .3% to $14.75.