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Shares of troubled Canadian smartphone maker BlackBerry (NASDAQ: BBRY) soared more than 9% Tuesday following a Department of Defense report that said its handsets were still the Pentagon's top choice. It anticipates that about 80,000 devices will start to be connected to its new network beginning at the end of January
Despite the company's ongoing struggles, it continues to offer leading security features. This is a significant contributing factor to the DOD's choice, and the news showed BlackBerry still has a hold on this lucrative part of the market.
More positive news came Tuesday with the announcement that the company is looking to divest the majority of its Canadian real estate. Specifically, BBRY wants to sell and lease back over 3 million square feet. This would raise a significant amount of cash for its turnaround plans.
BlackBerry's new CEO, John Chen, has only been at the helm for a few short months, but he has already made some significant moves. For example, in December, Chen formed a deal with Foxconn Technology Group, which also assembles Apple (NASDAQ: AAPL) iPhones, to outsource design and production. This should allow BBRY to focus more on its software and services business.
Chen's rapid changes in the company seem to be bolstering investors' outlook. The company has plenty of liquidity and is continuing its efforts to raise cash, which is essential for just about any turnaround plan.
BlackBerry is not scheduled to report earnings until March 28, which means traders don't have to worry about earnings volatility in this headline-driven stock for more than two months.
On the multiyear chart, BBRY has several important lines to focus on, as well as a positive development as far as momentum is concerned. The Relative Strength Index (RSI) has been showing positive divergence versus price since 2011. This divergence is most pronounced in November when RSI made an important higher low, while the price of BBRY fell to a marginally lower low versus the October 2012 lows.
Barring any significant negative developments, the bigger technical picture for the stock is looking much more positive. If things go well, BBRY has a first upside target around the $17 area, which I expect could be achieved in the next 12-18 months.
On the daily chart below, Tuesday's rally landed right at the 200-day simple moving average (blue line). This was the first time BBRY touched this moving average since it sliced through it to the downside in June of last year. As the gains continued Wednesday, BBRY crossed above the technically important line on higher-than-average volume.
Given the orderly ascent off the December lows, and keeping in mind the aforementioned fundamental positives, I think the stock will work its way toward the $12 area in coming weeks.
Recommended Trade Setup:
-- Buy BBRY at the market price-- Set stop-loss at $9.55-- Set initial price target at $12 for a potential 11% gain in 6-12 weeks
As a die-hard value investor, I struggled with its valuation in the past, but now I'm ready to pull the trigger.
Following a breakdown, there are simply too many bearish technicals on its chart to ignore.
As bearish trends take hold, this pick has become an overpriced company in a struggling sector.