Even though I’m my grandmother’s go-to person for repairing her (usually self-inflicted) computer issues, I’m the first to admit I don’t know much of anything about investing in technology.
The problem? I just can’t get past the valuations investors are willing to pay for the latest craze. Like the rest of my generation, I’m active on Facebook and Twitter, and I think they’re both great for staying in touch with friends, sharing interesting content, and as a tool for fans to interact with people they might otherwise never get the chance to meet, like prominent politicians or celebrities.
But just because they’re interesting tools doesn’t mean buying shares in them is smart investing. Many of these tech companies don’t make money, and most of the rest trade at valuations that are sky-high. I’m just not comfortable paying huge earnings multiples for potential, especially in the fast-paced world of tech. Technology is notoriously fickle; who knows what the future holds.
Which means for pretty much my entire investing life, I’ve largely stayed away from tech — with one notable exception.
I’ve held BlackBerry Inc. (TSX: BB)(NASDAQ: BBRY) for approximately two years now, getting in at $13.50 per share. And although I’m still down about 10%, I’m still a long-term believer in the company. Here are three reasons why I made the struggling smartphone maker the exception to my no-technology rule.
1. Pristine balance sheet
Even through all its struggles, BlackBerry has still maintained a rock-solid balance sheet. As an experienced turnaround investor, I can say one thing for certain: A good balance sheet is vitally important for any company looking to right the ship.
Even after years of struggles and write-offs, the company still has almost $3 billion in cash. Sure, that’s offset by $1.4 billion in debt, but that debt is convertible to stock at $10 per share. If the turnaround continues, investors will end up converting, which may be dilutive but will also maintain the pristine balance sheet.
Now that the company has gotten earnings back to essentially breakeven, the cash on the balance sheet becomes less of an insurance policy and can be invested in acquisitions or research and development. This should lead to a new cycle of prosperity.
2. Patents
Last month, CEO John Chen made headlines by announcing a new division of the company that would look for ways to monetize its portfolio of patents.
One of the reasons why I invested in the first place was BlackBerry’s large collection of patents. Tech companies are relentlessly suing each other, in the hopes that some new technology infringes on an existing patent. Sure, the patent portfolio is opaque, but BlackBerry owns more than 5,000 patents, and some of them have value. Analysts are mixed as to how much they’re worth, but estimates go as high as $3 billion, or almost $6 per share.
3. Prem Watsa
Prem Watsa is the CEO and chairman of Fairfax Financial Holdings Ltd. (TSX: FFH), which is one of BlackBerry’s largest shareholders. Since taking over Fairfax in 1985, his results have been so spectacular that Watsa has become a billionaire and has been compared to the best investor in the world, Warren Buffett.
That’s some pretty high praise.
Watsa isn’t going to hit a home run with every swing he takes. But given his history, I’m happy to ride his coattails. Not only does he control more than 46 million of BlackBerry’s shares (as of June 30, anyway), but Fairfax also owns $500 million of the convertible bonds, which would more than double his stake in the company if converted to equity — $1 billion is a huge vote of confidence, enough to catch my attention at least.
I’m content to hold my BlackBerry shares, confident the company will figure things out. I got in too early, but that’s fine. I’ll wait patiently, and I think I’ll be pretty happy with the results in a few years. Even now, BlackBerry is worthy of your investment dollars.
