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BlackBerry racing higher on Pentagon popularity

The Exchange

Shares of beleaguered phone maker BlackBerry (BBRY) jumped 8% on Tuesday and are now up 31% for the year as the company continues to draw fresh interest as a technology value play.

Investors are gaining confidence in new CEO John Chen’s turn around plans, including slashing costs and focusing on selling services to large organizations rather than devices to individual consumers.

BlackBerry briefly rose above $10 in U.S. trading Tuesday, the highest price since last September, when it became clear that few consumers were buying the company’s new line of Z10 and Q10 phones. The shares recently were trading at $9.80, up 7.9%.

The latest lift was assisted by the U.S. military. While other customers have defected in droves, the Pentagon said late last week that almost all of the phones and tablets connected to one of its new networks, 80,000 out of 82,000, were BlackBerries.

Last week, Citron Research, a noted stock-shorting firm, said BlackBerry was one of its rare “buy” recommendations.

“The company is essentially going to de-emphasize the device business, the loss driver of the company over the past two years,” Citron said in its Jan. 17 report. “For the first time, the future of BlackBerry is not going to be tied to the BlackBerry devices people were once familiar with; rather, it is going to be an enterprise software company with focus on mobile device management solutions and other potential mobile enterprise software opportunities.”

Overall, BlackBerry is on the way to fulfilling its destiny as the Hewlett-Packard (HPQ) of 2014. HP last year doubled in price as new CEO Meg Whitman cleaned house.

The stock recovery does not depend on BlackBerry regaining its crown as the leading smartphone maker. The company ignored Apple’s (AAPL) iPhone for too long and was surpassed by not only that company, but by Samsung (005930.KS) and other touch screen phone makers over the past few years.

New CEO Chen is largely pivoting away from devices, outsourcing manufacturing and some design to Foxconn. Meanwhile, he plans to market BlackBerry’s expertise running secure email networks. Chen named John Sims, an executive from SAP (SAP), to run the enterprise side of the company and hired former Sony Ericsson and HTC executive Ron Louks to head devices.

Still, not everyone is sold on the stock’s recovery. Citigroup analyst Ehud Gelblum slapped a “sell” rating on BlackBerry back in December at around $6.

“We see no clear-cut strategy, simple or otherwise, to help BBRY out of the strategic box it finds itself in and believe wind-down costs could come close to wiping out a great deal of the current cash balance on which the current valuation is based while the ongoing cash flow from the legacy Services business should dry up quickly,” Gelblum wrote.

So far, investors are siding with the bulls.