BlackBerry (TSX:BB)(NYSE:BB) stock has a long history. In 2002, shares were priced at $8. By 2007, shares zoomed past the $230 mark. The company controlled the biggest market share in the world for smartphone manufacturing. Shareholders were ecstatic.
You’re likely familiar with the fallout. Consumers rapidly ditched the company’s products for newer toys like Apple’s iPhone. The share price collapsed back to $8 within a period of years. The stock price has remained at that level ever since.
Today, BlackBerry doesn’t produce a single phone. It’s exited the business entirely. You wouldn’t recognize its current product line-up, as it exclusively consists of cybersecurity products sold to large enterprises. It’s hard to believe, but the company has pulled off one of the greatest turnarounds in Canadian history.
But here’s the thing: the market doesn’t seem to care. Despite transforming its business into a potential juggernaut, the stock price remains near multi-decade lows. That’s caught the eye of one major investor, which could completely acquire the company before 2020 is finished. If that happens, BlackBerry investors could fetch a significant premium to today’s trading price.
BlackBerry is exciting
Gone are the days of hardware manufacturing. Today, it’s all about high-margin, recurring software revenues.
For years after BlackBerry’s smartphone empire collapsed, the company’s products were still in use by high-profile individuals like heads of state, Fortune 500 CEOs, and A-list celebrities. They didn’t prefer the phone’s design, but rather its security.
The user experience was never BlackBerry’s value-add. The company specialized most in keeping your data safe. It has repurposed this reputation for cybersecurity to launch software products that keep connected devices protected from vulnerabilities. This is a massive growth market. Every year, billions of new devices connect to the internet. All of those endpoints need protecting.
In some cases, connected devices could wreak havoc if they are compromised. Consider self-driving cars. While not fully autonomous, the cars we have today are closer to computers than mechanical machines. If they’re hacked, the results could be devastating.
To solve this issue, BlackBerry launched its QNX cybersecurity platform for connected cars. It’s so unique that Amazon partnered with the company to combine their strengths. The system is already installed in 150 million cars worldwide. It’s adopted by nearly every major car manufacturer.
Increasing safety regulations forces car manufacturers to adopt BlackBerry’s technology. As a result, executives say that their technology is “increasingly being selected as the foundation for things like chassis control and battery management ECUs in addition to the traditional QNX-based systems in the vehicle.”
Connect the dots
BlackBerry targets some of the largest cybersecurity markets on the planet, yet shares trade at an 80% discount to peers like Crowdstrike Holdings. This discrepancy caught the eye of Fairfax Financial Holdings (TSX:FFH), which already owns 8.4% of the company.
On June 1, BB stock spiked 7% after Street Insider reported Fairfax held talks to acquire the entire company. According to a well-placed source, BlackBerry formed a committee and retained investment bankers to guide the acquisition. Fairfax denies this — a reasonable line to walk after their prospective purchased price surged unexpectedly.
The dots here are too easy to connect. Fairfax has owned BlackBerry stock for years, through thick and thin. It’s one of the staunchest believers in the company and just so happens to have billions in cash reserves.
Trading at a deep discount to its intrinsic value and peer group, don’t be surprised to see Fairfax completely acquire BlackBerry in 2020.
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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.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends BlackBerry, BlackBerry, and FAIRFAX FINANCIAL HOLDINGS LTD and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon.
Fool contributor Ryan Vanzo has no position in any stocks mentioned.