BlackBerry Up On No News, Is Good News

| About: BlackBerry Ltd. (BBRY)

From my experience, whenever a stock is up on no news, that is a very bullish sign. The reason is that a no news rally means investors are excited about a stock and are discounting the future, even if there is no additional information about the stock on that particular day. A change in perception is one way to put it.

On my last take on BlackBerry (NASDAQ:BBRY) (please consider: BlackBerry Short Interest Falls Off The Cliff) I said that short covering was a sign that investors are changing their stance on the company, and to the extent that short covering continues, there will be upside pressure on the stock. That's part of what I think happened on Friday. In fact the BlackBerry rally on Friday is even more bullish than it seems, because not only did it happen with no news, but at the same time all major U.S. indices were in the red.

However there was small piece of news out on Friday, but I doubt it had much to do with the rally in the stock, because the Barron's story broke out late in the afternoon, while the stock was hyper from the start of the session.

As Barron's reported, Citron Research wrote an analysis saying BlackBerry is worth minimum at least $15 a share! As your S.A. resident BlackBerry bull I can't argue with that. Almost all points raised in the article have been covered by me in the past, but there are several interesting points in the article that I have not stretched upon enough.

For example in their report, Citron says Blackberry is no longer a devices company, but an enterprise software company. While devices are not completely out of the picture, the truth of the matter is that devices are now (by default) a compliment to BlackBerry's operations and not the pedestal of its operations.

Ever since BlackBerry hooked up with Foxconn -- to manufacture its devices -- it has little or no inventory risk from now on. That means that BlackBerry is free to concentrate on the enterprise side of things and develop other services.

On that note Citron says:

The new strategy -- eliminating device inventory risks and refocusing on enterprise software business -- has already significantly de-risked Blackberry's balance sheet. Street estimates of its cash position outlook in the future largely portray the company stabilizing its cash flow within the next few quarters. RBC, for example, sees Blackberry stabilizing its cash position in the 3rd quarter of fiscal 2015, which is three quarters from now. While investors are bombarded on a daily basis with media articles about the struggling handset maker as if the Company was going to fall apart any day, the reality is it has a healthy balance sheet, with ample liquidity to execute its turnaround strategy and make the necessary investments for growth.

I could not agree more with the above statement and in fact, I have been saying all along that everyone is missing the point that BlackBerry is not going out of business. And if it's not going out of business, and its assets will not be sold in a fire sale auction, then the street has to decide what the company is worth and even more important, what it might be worth in the future in the event of a full turnaround.

Citron also stresses what I have said numerous times in the past, and that is, BlackBerry does not need to be in the retail business at all. Government contracts, corporate customers (who value their security) and the military is more than enough to keep BlackBerry going, until such time comes when (and if) they decide on a retail strategy.

For governments, BlackBerry cannot just be replaced. We are the only MDM provider to obtain Authority to Operate on U.S. Department of Defense (NYSEARCA:DOD) networks," he said. This means the DoD is allowed to use only BlackBerry. Across the globe, seven out of seven of the G7 governments are also BlackBerry customers." -- John Chen on CNBC -- December 30, 2013

And while many other companies are getting in the MDM business, Citron stressed that BlackBerry has a global enterprise customer base exceeding 80,000, that is three times the customers compared to Good, AirWatch and MobileIron combined! In other words, BlackBerry is the current leader in mobile device management.

Citron also talked about short covering, QNX, BBM and the value of its patents, but since these topics have been covered many times in the past, I will not touch on them. However something else in the report that is very important, that I have also stressed on the past (and honestly I don't think analysts have given it much thought) is the pent-up demand effect.

See, with all the noise about the company going out of business, many customers put off upgrading to BB10. But once perception changes and the market realizes that the company is not going out of business, many firms will probably go ahead and upgrade to BB10. That will probably drive a lot of business at an accelerated pace in the near future.

Bottom line

I don't think that the rally in BlackBerry's shares has much to do with the Citron report, because the topics covered are all known to the market for some time now. What I think is happening is that perception about BlackBerry is changing. The market has embedded, and is digesting, the fact that the company is not going out of business. And the no news rally proves this change in perception.

As such, the next question is what BlackBerry might be worth in the future as a pure enterprise software company, once it turns around.

Citron says BlackBerry shares are worth at least $15. I think they are worth at least that much, and as I said on my last take, I think we can see BlackBerry shares as high as $18 a share in 2014.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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