Are you building a portfolio that can make you wealthy in a decade? Then you might want to add BlackBerry (TSX:BB)(NYSE:BB) stock to your long-term portfolio. It is among the top three stocks in Prem Watsa’s portfolio. Let me warn you: BlackBerry stock demands patience from its investors.
A growth stock in a weak economy
BlackBerry has been reincarnated from a mobile maker to a cybersecurity company and a leader in the Internet of Things (IoT) market. You saw the stock’s volatility in the 2020 tech bubble and the 2021 meme stock episode. And now you see the stock price slumping 38% year to date. The short term is challenging given the tech stock selloff and weak automotive and IoT markets. But long-term growth prospects are bright.
BlackBerry is a mid-cap stock with an average trading volume of over 1.4 million, which means it has reasonable liquidity. Its price is sensitive to rising interest rates. As a growth stock, it appeals to risk-taking investors. But a weak economy makes investors risk averse, and rising interest rates make fixed-income securities attractive. Hence, risk-averse investors are in a sell mode with BlackBerry stock, as they fear a recession.
BlackBerry is a stock to buy when others are selling, because the market has not priced its long-term growth potential.
BlackBerry’s five-year growth strategy
BlackBerry is a cybersecurity and IoT software and services company. It is a leader in the IoT market, and this is where it is eyeing higher growth. Its QNX operating system (OS) powers more than 215 vehicles. The company’s software is used by 24 of the top 25 electric vehicles (EV) automakers, and eight of the top 10 medical device original equipment manufacturers (OEMs). BlackBerry is also improving its IVY vehicle data platform to make your car intelligent and do more than drive.
BlackBerry targets to increase its IoT revenue at a compounded annual growth rate (CAGR) of 19.8% to $443 million by 2027. It expects this growth to come from the multi-year backlog of confirmed design wins for the QNX platform and the growth potential of the IVY platform.
However, BlackBerry’s more prominent business is cybersecurity, from which it earns 67% revenue. The cybersecurity business has a higher average recurring revenue (ARR), as they get constant upgrades. The company targets to grow the segment’s revenue at a 10% CAGR in the next five years, driven by growth in security products.
While these are BlackBerry’s growth targets, what matters is a conducive environment for the business to grow. And the long-term macro picture is conducive for BlackBerry.
Why am I bullish on BlackBerry stock?
BlackBerry’s strength is its digital cockpit and endpoint security. The IoT growth has been tepid due to inadequate communication and digital security infrastructure. The pandemic, chip supply shortage, and the recession have delayed this growth. Telecom companies are using this time to build the 5G infrastructure. The fifth-generation communications technology will bring broadband-like speed to edge devices.
A very-low latency, high-speed internet connecting billions of devices can facilitate real-time artificial intelligence (AI) at the edge. The 5G infrastructure can make smart cities and autonomous cars a reality, leading to IoT proliferation. Smart edge devices need an intelligent OS and secure digital environment, creating demand for BlackBerry products.
Investor takeaway
BlackBerry has $721 million in cash and equivalents that can help it withstand short-term challenges and tap long-term growth potential. Don’t be disheartened by a net loss as long as the revenue growth rate is strong double digits. Most software companies achieve breakeven when they have an adequate market share that brings sufficient ARR to cover operating expenses.
The short-term market volatility could pull BlackBerry’s stock price below $7. But the stock could rebound 15-20% when the economy recovers. The stock could tap the long-term EV revolution and IoT proliferation and grow your money in 10 years.
