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How Does BlackBerry Ltd. Fit Into Your Portfolio?

BlackBerry Ltd.  (TSX:BB)(NASDAQ:BBRY) is one of those stocks that, no matter what, some investors just want to hate and others just want to love. But as an impartial investor who doesn’t fall in love with any company, you’re stuck trying to decide how this stock fits into your portfolio.

In particular, you’re looking at the roller coaster of a year BlackBerry has had. Up until March, the stock was languishing at under $10 a share. But thanks to a series of good news cycles, the stock experienced a major run up, topping $15 before it then started to drop once more. With the stock on the rise again, should investors be looking at buying it?

BlackBerry is not a stock without risk. But there are quite a few initiatives in play that I believe could be major for the company over the coming years. Because of that, BlackBerry deserves to be a holding, though not a top five holding by any stretch of the imagination.

I can make that claim because BlackBerry finally got out of the hardware business. CEO John Chen said in an interview that “the phone market on the high end is saturated.”

But wait — didn’t BlackBerry just announce a new device called the BlackBerry Motion? Not exactly…

BlackBerry announced with its hardware partner TCL Communications that the Motion was being released. BlackBerry simply provides the software; TCL invests the resources for the phones. As Chen explained in an interview, “this licensing model allows BlackBerry to generate ongoing high-margin royalty revenue from a device software based on the number of units sold.”

BlackBerry lost the phone war, so this was a great move, and I am curious to see how it plays out.

Fortunately, the company’s focus on being a software company is working quite well. BlackBerry released its second-quarter results at the end of September, and they were strong. In particular, licensing fees saw massive growth from US$16 million last year to US$56 million this year. This, in part, allowed BlackBerry to post a US$0.05-per-share profit. And going forward, I expect results to strengthen.

In the IoT world, BlackBerry is gaining ground with its QNX operating system. Ford Motor Co. promoted BlackBerry to a tier-one partner and is putting QNX into its vehicles. And BlackBerry’s Radar product, which is just getting ramped up, has been helping shipping companies save considerable amounts of money — early customers have had a 17% drop in the need for trailers.

One analyst believes that QNX and Radar alone could push BlackBerry to US$45 per share in three years. That doesn’t take into consideration the other projects the company is working on, along with its expansion into cyber-security consulting.

With US$1.9 billion, or $2.3 billion, on the books, there’s only so low this stock can go. With a market cap around $7.5 billion, 30% of BlackBerry’s perceived value is in hard cash. If the company had no patents, no products, and no revenue, we know the company would at least be worth its cash.

Is BlackBerry going to achieve the same greatness it had before it lost the smartphone wars? No, of course not. But I do believe there is a market for highly secure software, and that is the reputation that BlackBerry has. Own a piece of this stock and wait for the true recovery.

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Fool writer Jacob Donnelly does not own shares of any company mentioned in this article. David Gardner owns shares of Ford. The Motley Fool owns shares of Ford.

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