2 Reasons to Avoid BlackBerry Ltd, and 1 Stock to Buy Instead

BlackBerry Ltd (TSX:BB)(NASDAQ:BBRY) seems to be on the right track so far, but it is still very risky; here’s a better alternative.

| More on:
The Motley Fool

So far, it seems that new BlackBerry Ltd (TSX: BB)(NASDAQ: BBRY) CEO John Chen has the right priorities. He’s emphasizing the company’s strengths, monetizing assets such as real estate, and trying to bring back positive cash flow. He is a big reason why so many people are betting on the company.

That said, there are also plenty of reasons to stay away from BlackBerry’s shares. Below I present two of them, as well as one stock you may want to consider instead.

Reasons to avoid BlackBerry

1. A tough fight

Anyone who has lost money has learned a very valuable lesson: When a company has to constantly innovate just to keep its existing customers, things can go wrong very quickly. More specifically, BlackBerry lost nearly all of its market share when rivals came out with better products.

That is a problem the company still faces today. For example, you’ll hear Mr. Chen speak often of BlackBerry’s leadership in security. To be fair, the company still does this better than its rivals. However, who doesn’t think that Apple Inc. and Google Inc are determined to close that gap, and that they have the financial resources to do so?

You’re much better off finding companies that have a sustainable competitive advantage. That way, you don’t have to worry so much about competitors stealing market share. As for BlackBerry, it’s in for the fight of its life.

2. The short term

Unfortunately, BlackBerry is still bleeding cash, and this can have some severe consequences.

For one, it means that it will have difficulty focusing on the long term. For example, let’s say the next big technological breakthrough would take five years to develop. Apple and Google can plow right ahead, but BlackBerry cannot justify such an investment.

Secondly, there will be challenges with talent management. To illustrate, let’s say that you’re a top programmer. Would you rather work for BlackBerry or for Google? Likewise, if you already work for BlackBerry, there may be better opportunities available, ones that offer more certainty.

To be fair to BlackBerry, it seems to be doing a great job dealing with these issues. However, these are some of the problems that any turnaround can run into, and they are difficult for investors to see — until it’s too late.

A stock to buy instead: Thomson Reuters Corporation

Thomson Reuters Corporation (TSX: TRI)(NYSE: TRI) sells information services, mostly to legal and financial professionals. The company has had some stumbles, but also has some very attractive characteristics.

For one, it makes revenue mostly off of subscriptions, and these subscriptions have high renewal rates because they are generally a pain to switch away from. Secondly, while competition is fierce at times — no one wants to compete with Bloomberg — it is not over the top.

Despite Thomson’s slip-ups, it hasn’t lost significant market share the way that BlackBerry has. Also, with a 3.5% dividend yield, Thomson gives you a nice steady income stream too, something still in the distant horizon for BlackBerry Ltd.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned. David Gardner owns shares of Apple, Google (A shares), and Google (C shares). Tom Gardner owns shares of Google (A shares) and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares).

More on Investing

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

This 8% Dividend Stock Pays Cash Every Month

Earn monthly cash of $154 with this 8% dividend stock.

Read more »

A miner down a mine shaft
Metals and Mining Stocks

Should Investors Buy the Correction in Lundin Mining Stock?

Lundin (TSX:LUN) stock has fallen by 10% in the last few weeks, but so has the price of copper. Coincidence?…

Read more »

Metals and Mining Stocks

Best Stocks to Buy in May 2024: TSX Materials Sector

A TSX materials sector ETF could help investors gain cheap diversified exposure to the hot sector's stocks – so will…

Read more »

man is enthralled with a movie in a theater

Should You Buy Cineplex While it’s Below $9?

With analysts expecting a significant recovery in the second half of 2024, is this the last chance to buy Cineplex…

Read more »

oil tank at night
Dividend Stocks

Think Oil Is Going Higher? 3 Dividend Stocks to Buy Now

Looking for steady dividend growth? These three Canadian oil stocks could provide substantial dividend income in the coming years.

Read more »

Profit dial turned up to maximum
Dividend Stocks

This 7% Dividend Stock on the TSX is Worth Watching

With this superb TSX stock now trading at the bottom of its 52-week range, it's certainly a dividend stock you'll…

Read more »

Dots over the earth connecting the world
Dividend Stocks

1 Magnificent Dividend Stock Down 23% to Buy Right Now Near a Once-in-a-Decade Valuation

Patient investors could be happy with this dividend stock a few years down the road.

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

2 TSX Dividend Stocks to Buy While They Still Offer Great Yields

These top dividend-growth stocks now offer 7% dividend yields.

Read more »