Stock Traders Daily selected BlackBerry (NASDAQ:BBRY) as its turnaround stock of the year for 2014 late last year when the stock was getting hammered, but also right after management changes were announced. With an underlying stream of intellectual property, we included BBRY in our outlook for 2014 as our standout selection, and thus far, the stock is doing what we expected. The 'turnaround stock of the year' call was made when the stock was at $6.7, and from there, though the early part of the year, BBRY surged to near $12. However, we also issued statements suggesting that investors not chase the stock. It fell back again as we expected, and provided exceptional entry levels for latecomers and for traders who embrace the volatility.
When companies experience transitory phases like BlackBerry is experiencing now stocks often undulate wildly, but when stocks have been decimated opportunities also surface and for those companies who have valuable intellectual property like BlackBerry prudent leadership can transition companies like this from spirals lower to stability and then to forward progress.
The transition to forward progress is indeed a multi phase transition, however. Not unlike how a stock trades based on technical analysis, after support is tested stocks usually experience a neutral phase where they trade sideways for a short while before they turn higher again, the same often happens in business cycles, especially after companies experience severe setbacks like BlackBerry did last year.
In addition, it continues to be our belief that BlackBerry experienced this weakness due to poor management decisions last year, management was trying to sell the company rather than produce superior products, and that caused many problems not only for potential customers but for investors alike. As soon as old management departed and new management took over, with an objective of focusing on the company's strengths, turnaround opportunities became clear.
Shares of BlackBerry have been up substantially because stability is indeed becoming visible to the investment public. Excluding onetime charges, BlackBerry actually earned 4¢ a share during the recent quarter and that is a positive sign. Revenues clearly were expected to fall significantly from the same period last year, but the company is focusing on its core strengths, and in doing so will likely not only return to profitability, but also return to growth.
Notwithstanding an extraordinary event, we are expecting BlackBerry to continue on this path, we have witnessed the decline, we are witnessing the stability, and we are expecting the turnaround story to come full circle as this year continues.
In addition, and importantly, at current levels BlackBerry also appears quite attractive as a takeover target. Last year prior management was trying to sell the company at $9.00, but no one likes to catch a falling knife and potential buyers shunned the idea. With stability now clear, anyone who might have been interested in BlackBerry as intellectual property might now understand that the longer they wait the more they will have to pay because the next phase after stability is growth once again.
BBRY continues to be our turnaround story for 2014, our clients are already holding substantial gains, and according to our real time trading report for BBRY BlackBerry has room to increase as it moves towards longer-term resistance, so if the stock stays on its current path upside targets are identifiable.
Thus far the events are playing out as we expected and as we outlined in December 2013, but we do not like chasing stocks that run hard. In fact we told clients to wait to buy the stock when it was near $12, so there is not an unconditional green light here. We had buy signals at good prices, and we do not like chasing.
Last year prior management made horrible mistakes that were very selfish in nature, but gladly those managers have departed and level heads are prevailing, that made the turnaround potential clear late last year, now we are seeing stability, and BBRY seems to be on the right path.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Thomas H. Kee Jr. for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.
Additional disclosure: BBRY was called as the turnaround stock of the year for clients of Stock Traders Daily when it was $6.7 and many clients hold BBRY as a result.