You remember Blackberry (BB), don’t you? Fifteen years ago, the ubiquitous black smartphone was all the rage. That all changed in 2007 when Apple (AAPL) introduced its iPhone, recalls Jim Pearce, editor of Investing Daily's flagship newsletter, Personal Finance.
The iPhone featured apps that a Blackberry did not have. Within a few years, Blackberry sales fell as Apple quickly gained market share.
You may be surprised to learn that Blackberry is still around. In fact, it still makes a smartphone. But that’s not why the company was in the news recently.
On December 1, the company announced that it signed a deal with the Amazon Web Services (AWS) division of Amazon (AMZN). This transaction has nothing to do with smartphones. Instead, Blackberry will develop software used in cloud-connected vehicles using Amazon’s cloud services.
Blackberry has been down in the dumps so long that most people have forgotten about it. The company is headquartered in Canada and has a market cap of less than $5 billion so it doesn’t get much love from Wall Street. That makes Blackberry the perfect “ambush stock” for 2021.
Its last set of quarterly results came in better than expected. The company reported non-GAAP (generally accepted accounting principles) earnings per share of 11 cents on a basic/diluted basis. However, on a GAAP basis Blackberry reported a loss of 4 cents per share.
For that reason, the trading algorithms that evaluate stocks still view the company as a black hole into which money goes and nothing comes out.
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After running up above $8 the day of the announcement, shares of Blackberry receded back below $7. At that price, the company is valued at roughly six times trailing non-GAAP earnings. That’s cheap for a stock that just entered into a partnership with the second most valuable publicly traded company in the world.
In fact, all of Blackberry’s multiples are misleading given how much its operating metrics could improve over the next twelve months. That’s because sale revenue could soar next year. In addition to the deal with Amazon, Blackberry is launching a new smartphone in 2021.
This new Android phone is specifically designed to maximize the benefits of 5G technologies in the United States and Europe. The phone will be manufactured in India by OnwardMobility, a privately held company that is aggressively pursuing the 5G market.
India’s national 5G network is expected to be completed in a few years. When that day comes, Blackberry’s phone will become available to a market of more than one billion consumers. Blackberry stock is so cheap that it does not have to appreciate much to make a big profit.
That approach worked for me last year when I recommended Corning (GLW) while it was priced below $30. Last month, it traded above $38 for a 27% gain. I think it could do even better in 2021.
