Time to Call on BlackBerry?

08/11/2014 7:00 am EST


In assessing stocks and options, Alex Eppstein combines technical, fundamental, and contrarian-based sentiment metrics. In Schaeffer’s Investment Research, he highlights this troubled smartphone maker.

BlackBerry Ltd. (BBRY) has gone through a tumultuous restructuring process over the last three years, with its workforce shrinking by about 60%.

However, the worst is over, according to CEO John Chen. "We have completed the restructuring notification process, and the workforce reduction that began three years ago is now behind us," Chen reported in a memo to his employees earlier this week.

In fact, it appears things are on the up and up. Not only does the executive believe layoffs are a thing of the past, he also sees—at least some—limited hiring ahead. Specifically, Chen said, "barring any unexpected downturns in the market, we will be adding headcount in certain areas such as product development, sales, and customer service, beginning in modest numbers."

Indeed, Chen has done an admirable job of navigating choppy waters—and investors have taken notice. Year-to-date, BBRY shares are up nearly 28% to trade at $9.49.

More recently, the stock successfully re-tested support at the $9 level, which corresponds with the site of a bullish gap from June. In fact, the mobile phone issue has outperformed the broader S&P 500 Index (SPX) by 24.5 percentage points in the last three months.

Traders have bought to open nearly four BlackBerry calls for every put during the last ten weeks. The resultant 50-day call/put volume ratio of 3.75 ranks in the bullishly skewed 86th percentile of its annual range.

However, with 19.4% of BBRY's float sold short—which would take nearly one week to cover, at the equity's average daily trading pace—some of these long calls could have been initiated by short sellers attempting to hedge their bearish stock positions.

Elsewhere, Wall Street has struck a skeptical posture toward the security. Just one out of 25 covering analysts has given BBRY a buy rating, compared to 21 holds and three sell or worse suggestions. On top of that, the stock's consensus 12-month price target of $10.02 represents a less than 6% premium to the current price.

All things considered, from a contrarian perspective, BlackBerry could be poised for additional gains. Specifically, if the shares can sustain their positive momentum on the charts, short-covering activity and/or positive brokerage attention could ensue, providing the stock with an additional lift.

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