Why are you still holding BlackBerry? This fund manager says sell

BlackBerry (BlackBerry Stock Quote, Chart, News, Analysts, Financials TSX:BB) was heavily traded last week as the stock found itself in the middle of the social media-inspired run on a select few names including GameStop and AMC. What will this week hold for the Canadian tech company? The better question is why would anyone be holding onto BlackBerry when you could be selling for big gains, says Scotia Wealth’s Greg Newman.

“BlackBerry did have some fundamental wins in the last couple of months,” said Newman, director of wealth management at Scotia, speaking to BNN Bloomberg on Friday. “They had their Amazon deal, their Facebook settlement and some patent sales.”

Reddit Rally…

“Brisk auto sales could maybe help their QNX software and they do have a pretty strong balance sheet, but look, they got caught up in this Reddit thing,” he said. “We were buying at around $7 — we were selling puts and got put in at around $7 or $8 just two months ago. After the last number of days we sold some at $25 and we sold some $31.”

“Sometimes it’s better to be lucky than good,” Newman said.

It had already been a great start to the year for BlackBerry, which doubled in value over the first three weeks of 2021 to hit $17.86 by Friday January 22, already hitting levels not seen since 2018. That was back when the BlackBerry turnaround was gaining momentum and investors were buying into the company’s transformation from dethroned king of the mobile phone racket to resurrected software and security business.

But once the reality of the situation took hold — mainly, that software and cybersecurity are tough markets to crack — and faith began to wane in CEO John Chen’s ability to repeat the remodelling job he performed in the 2000’s at the helm of software company Sybase, BlackBerry’s share price started to suffer, dropping to as low as $4 at the nadir of last winter’s pullback.

More recently, the stock first started popping in early December after the company announced further details on its partnership with Amazon’s AWS cloud business, with the two working on an intelligent vehicle data program to monetize in-vehicle applications and connected services. The news was a potential game-changer for BlackBerry, as the new platform aims to be the standard for new autos across the board much like Microsoft Windows.

Combine that with a sale of patents earlier in January and a settlement in a years-old patent infringement case with Facebook and the future was looking brighter. Then came the madness that was last week where a hoard of retail investors ganged up on a few stocks which had been perennial short targets, lifting their valuations to unbelievable heights in the matter of hours. BlackBerry’s share price whipsawed to as high as $31 at one point before ending the week pretty much where it started in the $17 range.

Insider Selling…

Newman says investors thinking of holding onto the stock should keep in mind that not only is BlackBerry a risky hold but that insiders have been selling, which is usually not a good sign. It’s been reported that three executives sold $1.7 million of stock in the days leading up to last week’s turmoil. BlackBerry’s CFO, its Chief Marketing Officer and a head of Enterprise Products and Value Added Solutions divisions all sold shares on January 20 when the stock was in the $12-$13 range.

“This has been a speculative story on BlackBerry’s ability to grow their software businesses and security and QNX, and so they could do that and maybe the world awaits them, but until then this is just speculative. I’d be selling. I’d be selling right now,” Newman said.

“Insiders were selling at the levels it was at last week before this frenzy, so I think that tells you something. I wouldn’t be buying at $18. I’d be buying it probably around $8, $9 or $10, and that’s what I think the stock is worth right now,” he said.

On the insider selling, BlackBerry said to the Globe and Mail on Friday, “The BlackBerry executives traded during an open trading window, as permitted under company policy, and all of our executives continue to have strong equity-based incentives through our long-term equity program.”

BlackBerry delivered fiscal third quarter 2021 earnings in mid-December where the company beat analysts’ forecast on profit, coming in with non-GAAP earnings of US$11 million or US$0.02 per share versus the consensus estimate of a loss of US$0.01 per share. Revenue for the quarter fell from US$267 million a year ago to US$218 million, with the company projecting better results with the return of auto sales in the upcoming year. With the third quarter results, BlackBerry reiterated its call for full-year revenue of US$950 million. (All figures in Canadian dollars except where noted otherwise.)