BlackBerry(TSX:BB) stock fell 20% after it announced plans to split on October 4, 2023. Since December, there has been a series of 20% dips in the second half of every month, with February being an exception.
- In December 2023, the stock fell 20% after the company announced a new CEO.
- In January, there was another 20% dip after the company extended the $175 million convertible debenture maturing on February 15 by five years.
- February was relatively stable as BlackBerry’s largest shareholder Fairfax Holdings was executing the US$175 billion convertible debenture transaction.
- In March, there was another 20% dip. The trend changed to a 13% dip on April 10 instead of the second half after it rallied post-2024 earnings.
Interestingly, none of the dips have a high trading volume. This pattern hints that a shorting trend has been in the works. Despite the fundamentals, traders have been using the stock to make trading profits. The short selling became more prevalent when the North American markets saw the return of meme stocks on May 14.
Is the meme stock frenzy back?
In 2021, Redditors took hedge fund managers by surprise and made them lose millions in the short position through short selling. Taking a short position involves betting on the decline in the stock price by selling the stocks you don’t own in hopes of buying them at the dip and delivering the stocks. But Redditors would artificially hike the stock price by buying at a far greater price. Hedge funds were forced to cut their losses and buy the stocks from Redditors at a higher price to deliver the shares.
On May 14, “Roaring Kitty” resurfaced on X, and all three meme shares – GameStop, AMC, and BlackBerry surged. BlackBerry stock surged 20% on May 14 and fell 15% over the next three days.
What should fundamental investors do? Buy the dip or call it a pass?
BlackBerry has the potential to recover and grow on fundamental grounds once automotive sales revive. However, hedge fund trading has made the stock extremely volatile. If you already own the stock, you can consider holding it for the long term. However, if you are not quick at booking profits when the stock surges, call it a pass. Remember, hedge fund managers will only use the shorting strategy till they are making a profit.
I would suggest adopting a wait-and-watch approach instead of getting caught in the momentum. The stock could dip even below the dip you buy at once the trading momentum eases. Instead, you could consider buying profitable stocks like Hive Digital Technologies. Hive is also trading below $4 per share and has a better chance of surging to $6 or $7 when Bitcoin prices surge.
Is BlackBerry stock a good investment?
Looking past the short trading, BlackBerry as a company has the potential to become a turnaround story if it can revive its cybersecurity business. Its Internet of Things (IoT) business could pick up as the 5G era facilitates the proliferation of IoT devices. In the connected world, robots, drones, security cameras, cars and other devices are connected to the internet and communicate among themselves and with the database through the cloud network. Such a network needs safe and secure network connectivity and data security, an area Blackberry is tapping into.
Blackberry has a strong product portfolio in two high-growth markets – cybersecurity and IoT. The company is now restructuring its business to streamline operations and focus on profitability. There is also the $815 million royalty backlog of QNX software yet to be realized once production begins. These reasons make BlackBerry a stock worth holding for the long term.
