BlackBerry (BBRY), the dog’s behind of a tech stock that still occasionally sees a ray of sunshine, just caught a big break with an upgrade from Morgan Stanley yesterday. Shares of BBRY stock rallied about 7%, in large part because of cost-cutting initiatives that MS thinks will result in near-term value.
Uh, sure. And now that there’s a roughly 10% pop priced into BBRY after this headline, all that value is gone.
In short, investors shouldn’t read anything into this quick burst in BlackBerry stock. In fact, if you’re one of those stubborn few who have been hanging on to BBRY stock over the last year in hopes of a rebound, this may be it.
That means it’s time to sell BlackBerry — for good.
No Growth, No Hope for BBRY Stock
First off, let’s keep in mind that Morgan Stanley offered its take with a 12-month price target of $7 — which, coincidentally, is now $1 below the BBRY stock price before the pop (read: short covering) on this news.
Look, Morgan Stanley’s thoughts regarding BlackBerry’s cash stockpile are not new. The idea of its cash balance as roughly half of the valuation of BBRY stock — $3.50 to $3.75 a share — is pretty obvious when you consider the balance sheet. About $3 billion in cash less about $1.5 billion in debt gives you $1.5 billion free and clear. With a current market capitalization of about $3.8 billion before this run, that’s a little less than half.
Similarly, MS is obvious with its assertion that cost-cutting is a short-term plan. Yes, BBRY stock is pursuing software businesses instead of its legacy smartphone operations, in large part thanks to the fact that Samsung (SSNLF) and Apple (AAPL) already obliterated that handset biz and it has no alternatives.
Whether BBRY stock can survive on its own two feet after the death of its smartphones remains an open question — and one that investors can’t be too keen on given the fact BlackBerry shares are off 24% in the last 12 months.
So don’t read too much into this “upgrade.” It has been fully priced in and doesn’t change squat about this loser smartphone stock.
Sell BlackBerry on the short-term bump if you’re holding … because you might not get another favorable exit point for BBRY in the near future after this fades.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
