Shares of BlackBerry (NASDAQ:BBRY) just underwent what was quite a profitable short squeeze for recent longs. The stock rocketed to the tune of 14%+ on a statement made by a Lenovo (OTCPK:LNVGY) executive that implied that the firm could be looking to outright purchase BlackBerry. I think that this could be an interesting move, albeit it would be quite costly for Lenovo. In fact, Lenovo has a mere $4.48B in cash and cash equivalents and a market capitalization of only $11B; so it would be very tough for Lenovo to actually acquire BlackBerry at any sort of premium without taking on an inordinate amount of risk, debt, and potentially massive write-downs if things don't go well.
So, no, Lenovo is not going to be buying BlackBerry anytime soon.
I believe that investors should take some off of the table following the recent short squeeze (my followers were alerted to do so in my StockTalks). Stay exposed to the name if you are in much cheaper, but make sure to lock in some gains by either selling some upside calls or simply selling a portion of your stake.
Now, I'm guessing that there will be an even better buying opportunity for the shares for those of you who missed the initial "pop" on a couple of potentially negative catalysts coming this week:
1. Samsung Galaxy S IV Launch May Steal The Spotlight
The most obvious risk to BlackBerry shares in the near term is the upcoming launch of the Samsung Galaxy S IV, which is likely to follow in the footsteps of its predecessors and become one of the world's -- if not the world's -- most popular smartphones. The fanfare is likely to be huge, and there is an expectation that the phone will feature a number of novel features such as eye scrolling.
The launch of the SGS IV will probably get the sell-side excited about Samsung's potential to basically "eat the lunch" of all the other phone vendors, which means that BlackBerry, Apple (NASDAQ:AAPL), and others will get hit.
2. It Won't Take Long For The Street To Realize Lenovo Can't Afford It
I wish I had looked into it sooner, but I believe that the sell side will quickly catch on to the fact that Lenovo is probably incapable of/unwilling to buy BlackBerry at current prices, let alone at any premium to current values. Lenovo's chance may have been when BlackBerry traded in the $6 range, but even then it would have wiped out Lenovo's cash hoard and put the PC giant in a position of financial vulnerability in this bad macro. It's not even clear if BlackBerry would be sufficiently accretive to earnings, especially as Lenovo's Android strategy seems to be working out just fine.
The Recovery Play Is Still Intact, However
I would use any major drop (>= 10% from current levels) to start further building the position if you truly believe the BlackBerry story. Again, there are a number of catalysts coming up including the Z10 launch in the USA, the earnings report on March 28th, and then after that the launch of the Q10 for the true BlackBerry fans that have been waiting years for a successor to their much-loved devices. Remember, though, this is a highly volatile speculative play, so don't risk more than you can afford to lose.