BlackBerry (NASDAQ:BBRY) had an extraordinarily bad trading day yesterday. Shares were down sharply under high volume as Apple (NASDAQ:AAPL) and IBM (NYSE:IBM) announced, that they are partnering up to offer business services which, at least in the mindset of many investors, is being perceived as a massive threat to BlackBerry's dominant enterprise market position.
BlackBerry shares have had a good run so far this year: Shares are up 30% year-to-date, and that's already including yesterday's plunge of almost 12% -- the largest intra-day decline since November last year.
Investors who haven't been reading my older BlackBerry articles are advised to read my previous article "Analysts Hate BlackBerry, Which Is Exactly Why You Should Buy" in which I argue, that herding behavior, the generally unstable emotional state of the average investor and a propensity to trade very often lead to sub-optimal investment decision making and inferior returns. As a result, market panics and hysteria offer solid investment opportunities for clear-headed investors who don't lose sight of the big picture.
A BlackBerry investment exhibited all these emotional factors, which, I think, will ultimately lead to superior investment returns for investors going against the flow.
What the fuss is about
Yesterday's almost comical plunge in BlackBerry's market capitalization certainly was another example of erratic market behavior, or better, a display of hysterical and emotional behavior of investors, who sold their shares simply because Apple and IBM are going to collaborate on an enterprise offer that could, theoretically, challenge BlackBerry's industry-leading position in enterprise.
Reuters reported on the deal between Apple and IBM on July 16, 2014 (note to readers: note the shattered BlackBerry glass at the top of the Reuters article to drum up negative sentiment and inflate the implications of the deal for BlackBerry):
(Reuters) - BlackBerry Ltd's shares took a beating on Wednesday after IBM Corp outlined plans to partner with Apple Inc to sell iPhones and iPads loaded with applications for business users.
The Apple-IBM tie up, beginning this fall, is set to target the customer base that BlackBerry needs to woo as part of a turnaround under new Chief Executive Officer John Chen.
"It is not a crushing blow at this early stage, but it is a negative for BlackBerry," said IDC analyst John Jackson. "There can be little question that it is unwelcome, if not entirely unexpected news."
My take: Are BlackBerry's large enterprise clients really going to jump ship because of new business apps of Apple and IBM? I can understand the allure of the Apple brand, but the assumption, that business clients that have established relationships with BlackBerry are going to switch over in large numbers is unrealistic.
BlackBerry has carved out a niche for itself due to its encryption technology and security features, which lend BlackBerry a formidable competitive advantage. These are the main reasons why large corporations and governments flock to BlackBerry for enterprise services.
Market reaction put into context
Now, it seems to me, looking at the large forceful decline in BlackBerry's share price (as indicated by the large red candle in the stock chart above), that investors are almost hysterically overreacting to the deal news.
In fact, I am of the opinion, that investors make this news into a giant theme and completely blow it out of proportion. Investors, who are also applying a contrarian investment approach, know this behavioral phenomenon by heart. It can be summarized as: "Oh my god, Apple is doing something, let's sell BlackBerry. This will be BlackBerry's final nail in the coffin."
Of course, as market history has generally proven over and over when it comes to panic predictions, little is going to change for BlackBerry, if anything. The very idea that established business relationships are going to get severed and investors migrate to alternate technology platforms appears to be preposterous.
While yesterday's deal announcement certainly had an impact on disrupting BlackBerry's positive news flow and stole a bit of BlackBerry's turnaround mojo, the market reaction is very likely to be extremely exaggerated.
Though I am a long-term shareholder and have dissected BlackBerry's turnaround progress in a variety of articles, there clearly is a short-term trading opportunity in BlackBerry emerging.
BlackBerry shares are now surely oversold in the short-term and the market will likely come to its senses in the next couple of days as investors reassess the Apple/IBM deal in a more sober and less emotional way.
Forceful declines based on fearful selling are Buffett-like investment opportunities. Since investors are very likely to be exaggerating the impact of an alternative enterprise service offering, contrarian investors might want to consider a Long position in BlackBerry, which I continue to see to have substantial upside potential.
Disclosure: The author is long BBRY, AAPL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.