Insane news circulated on Wednesday when reports came out that Samsung had made an offer to purchase BlackBerry Ltd. (TSX:BB)(Nasdaq:BBRY) for over US$7 billion, a 37% premium to its valuation. This resulted in the stock jumping 29.5% and closing at $15.02, a level it has not seen since May 2013.
Both companies vehemently denied that there were any acquisition talks, and the stock got pummeled in after-market trading.
While journalists attempt to make sense of these rumors, I don’t recommend that anyone start buying BlackBerry on the rumors unless you are comfortable trading the stock every step of the way. Buying it with the hope that you will make a quick buck flipping it could result in losing a considerable amount of money.
BlackBerry is going to drop more
Unless either company comes out and confirms that an acquisition is happening, this stock is going to drop. Because there are so many negative feelings about BlackBerry — Wall Street bankers are really emotional creatures — it’s likely to drop hard and fast over the next couple of days.
The primary reason for this is that the sell off occurred in the aftermarkets. Many investors who don’t buy or sell in the aftermarkets may see the serious drop, get scared, and sell their shares as well. It’ll be a classic case of fear leading to action.
A time will come to buy
There will be a time that comes in a couple of days when it is time to buy BlackBerry. This company is, fundamentally, in a good place to dominate going into 2015. If you’re thinking about it as a long-term hold for your portfolio, it’s probably one of the better stocks to buy, in my opinion.
What I would do is pay attention to the price of the stock over the next few days. In particular, watch for the stock to reach a point of being oversold. What that means is that the price sharply drops because of the rapid, panic selling that usually happens after news like this breaks.
When that panic selling stops, there is bound to be a bounce when everyone starts to realize that the stock is oversold. Based on my analysis, the stock’s support is around $11 to $11.50 a share. So long as it doesn’t drop right through there, we might have a nice bounce on our hands. And that’s when you want to buy.
But the truth is, you might not want to play around with BlackBerry during these volatile times. While I am bullish on the company in the long term, there is a lot of negative sentiment toward the company and it might be better to watch these rumors from the sideline.
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 Jacob Donnelly has no position in any stocks mentioned.