What struck me most about my first trip to Europe was the popularity of mobile phones.
It seemed everyone had one and was talking or texting while walking down the street. I look back on this experience as a glimpse into the future.
Just a few short years later, the same phenomena occurred in the United States. Today, landlines are becoming a thing of the past while even the majority of preteens own or use mobile phones. Nowhere has this growth been more dramatic than in the smartphone sector. These devices have become a ubiquitous part of our culture. Many people wouldn't even consider venturing outside without their smartphone.
The rise and fall of the companies producing these addictive devices is just as fascinating as their rapid rise to become an indispensible part of most people's lives. Once-popular companies such as Palm and Nokia (NOK) were among day traders' favorite stocks for quite some time. Those names have since fallen to competitors such as Apple (AAPL) and Samsung (SSNLF).
We all know the benefits of investing in the top-tier smartphone makers. However, there is a special situation arising in one left-for-dead manufacturer.
I'm talking about BlackBerry (BBRY) (previously known as Research in Motion).
This Canadian-based company led the smartphone revolution with its line of corporate-user-focused BlackBerry smartphones. But over the past several years, the company has been left in the dust by competitors.
In fact, this former high-flying company's shares were knocked down into the $6 range back in September. My purpose here is not to talk about why or how this happened, but to explore a real opportunity to profit.
|With a market value of more than $5 billion, along with its $3 billion in cash and no debt, Blackberry has become a prime takeover target.|
The Bad News
In the latest quarter, BlackBerry only shipped 2.7 million BlackBerry 10 devices -- missing Wall Street expectations by a disappointing 22%, or 600,000 units. Not to mention, gross margin dropped dramatically the first quarter -- from 40% down to 34%.
The Good News
With a market value of more than $5 billion, along with its $3 billion in cash and no debt, Blackberry has become a prime takeover target.
Analysts at Jeffriess have the takeout price for BlackBerry pegged at $15 per share with a target price of $18.
Sparking this speculation is the fact that BlackBerry's largest shareholder, FairFax Financial CEO Prem Watsa, recently resigned from BlackBerry's board of directors due to a conflict of interest.
This could mean Watsa has plans to take the company private. He has been exploring options with private equity firms to facilitate the buyout. BlackBerry has formed a committee to explore a potential sale. This news sent shares surging more than 10%. Shares have rallied since August 1 on the buyout possibilities prior to hitting resistance in the $12 range. The share price has since dropped back to $10 prior to bouncing off of this support level.
Most interestingly, is Timothy Dattels, who chairs the committee to explore options for the company. Dattels is also a senior partner at TPG Capital, which is a $57 billion private investment firm.
In addition, a possible bidding war could break out with the value of BlackBerry's patent portfolio and enterprise assets, potentially pushing shares above $20.
Risks to Consider: BlackBerry devices have fallen out of favor with many consumers. No matter how the company innovates, it seems to miss the mark. The possible buyout is very speculative and mostly based on circumstantial evidence. While there is the potential for solid upside, investors need to exercise caution, as this stock remains extremely risky.
Action to Take --> I would be a buyer of BlackBerry on a breakout above $11. If shares manage to break this level, the 200-day simple moving average is the next resistance level in the $13 range. If the rumours of a buyout start to turn into actions, shares could reach $15 to $20 within the next 12 months.
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