Utility stocks are a key component of a well-diversified portfolio, yet due to their defensive (think: boring) nature, most investors are unable to differentiate between most of the utility names. But for those of us who choose to be picky, Emera Inc. (TSX:EMA), is a large power producer that features a strong growth profile and dividend growth, which makes it stands out from the crowd.

A brief intro

For those not familiar with the name, Emera is a Halifax-based utility company focusing on the generation, distribution and transmission of energy and natural gas throughout the Maritime provinces, eastern United States, and parts of the Caribbean and New Mexico. Currently, Emera holds over $27 billion in assets, while serving 2.5 million customers.

Sector-leading earnings growth

Currently Emera is trading at a premium to its peers at 30 times its trailing 12-month earnings compared to the sector median of 21.3 (Thomson One estimates). The premium valuation is largely warranted due to the company’s strong growth profile.

For example, in its second-quarter 2017 earnings, the company reported EPS of $.55 versus the consensus of $.51 thanks to stronger-than-expected numbers from its Florida and New Mexico power segments. Of note, the former area assets represented the accretion stemming from Emera’s 2016 acquisition of TECO Energy: a US $10.7 billion deal that added $6.5 billion in assets to Emera’s books, as well as TECO’s wide array of renewable power resources.

A consistent dividend grower in the green space

Of course, Emera’s growth wouldn’t be worth highlighting if it was not reflected in the company’s dividend. History has shown that Emera has been a consistent dividend grower, with its +4% yield reflecting an 8% compounded annual growth rate, which is projected by management to go through to 2020 at a comfortable mid-70% payout ratio.

Furthermore, for those of us who gravitate towards socially responsible investments, Emera has a number of investments in the green energy space that are worth noting. For example, through the Tampa Electric Company, acquired as part of the TECO deal, Emera is busy pursuing various solar power initiatives such as the construction of the largest solar array in the Tampa Bay area. Moreover, according to an interview in the press, Emera CEO Chris Huskilson, has reiterated the company’s commitment to the Atlantic Link project — a subsea cable running to Boston from Nova Scotia, to meet the skyrocketing demand for clean alternatives in the states of Massachusetts and Connecticut in 2018.

So, there you have it; Emera is anything but a run-of-the-mill utility. As stock market valuations continue to creep higher, Emera represents a great defensive play that features a strong growth profile, a consistent and growing dividend, as well as investment in renewable resources.

The post One Standout Dividend Grower to Supplement Your Income appeared first on The Motley Fool Canada.

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Demographic trends paint a bullish picture

According to research from National Bank, there are several underlying factors that build a bullish case for senior-housing REITs. First and foremost, Canada is in the midst of a demographic shift as residents aged 65 years and older have eclipsed the number of people under the age of 14 for the first time in our country’s history. Moreover, as per the World Bank, the portion of Canada’s population aged 75 years and older in 2016 was 7.1% and is expected to grow to 13% by 2035 — far outpacing Canada’s overall growth rate of 14%.

Furthermore, according to the Canada Mortgage and Housing Corp. (CMHC), 9.1% of those aged 75 years or older occupied retirement facilities in 2016. As the senior population effectively doubles within the next 20 years, we can expect demand for senior-living facilities to increase.

Finally, although the level of affluence among seniors has increased 70% from 1999 to 2016 (median net worth of $270.7 thousand versus $460.7 thousand), elevated housing prices in major Canadian metropolitan areas mean that seniors are more inclined to lock in the price appreciation of their homes and maximize their retirement period through residency in a care home.

Enter Chartwell Retirement Residences

As far as senior-housing REITs go, the Canadian selection is quite slim; there are only a handful of public names. Moreover, the entire sector is quite fragmented with the 15 biggest names controlling just 43% of the market.

However, one name that stands out is Chartwell Retirement Residences (TSX:CSH.UN), which happens to be the biggest senior-housing REIT in Canada with 25,000 suites and a $3 billion market cap to its name. As the largest senior-home operator in Canada, Chartwell’s name represents a stable stream of cash flow as well as access to a talented management team which has led the company to outperform the TSX REIT average, more or less, in terms of quarterly same-property net operating income since 2010.

Furthermore, income investors will be happy to note that the REIT’s feverish acquisition activity is expected to slow down after the $800 million in aggregate expenditures it spent to strengthen its foothold in eastern Canada. This means that with a payout ratio of just 67% of adjusted funds from operations, investors can expect dividend increases in the coming quarters.

The bottom line

With the Bank of Canada expected to keep yields low in the near term, REITs and other income stocks have begun to look more attractive for defensive investors. If you’re looking for a stable source of income, then the payouts from senior-housing REITs such as Chartwell are about as certain as death and taxes.

The post Income Investors: Don’t Miss Out on This Hidden Gem appeared first on The Motley Fool Canada.

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These days, you simply have to sign up for a self-directed brokerage on any internet-capable device. You’ll have immediate access to a variety of equity, fixed-income, and derivative instruments at a fraction of the cost of a human broker. But for those who simply don’t have time to monitor their portfolios or any inclination to do so, a recent advancement that might pique their interest are robo-advisors.

Robo what?

Robo-advisory, in a nutshell, is investment management entirely through an automated program based on your risk tolerances and investment horizon. After determining the investor’s profile, the program, or “robot,” will create an investment policy statement and place the investor in a pre-configured portfolio set around some sort of mandate, such as growth, income, balanced, or any other combination.

The biggest draw of robo-advisors is, of course, their low cost; thanks to the instruments the platforms use (primarily ETFs), robo advisors can get away with charging fees of about 1% or less of an investor’s portfolio, which is significantly cheaper than what a human advisor might charge. We are also beginning to see robo-advisors offer valuable features such as automated tax-loss harvesting, which were once solely in the domain of human advisors.

According to research from Morgan Stanley, the robo-advisor market could reach $6.5 trillion in global assets under management (AUM) by 2025. Furthermore, growth in the industry has been averaging a breakneck 86% year over year, while over 70% of firms with greater than $15 trillion AUM and other financial companies surveyed by Morgan Stanley have either introduced robo-advisory as part of their services or are planning to do so in the next 12 months.

This competitive landscape bodes well for investors. We will begin to see more features rolled out for robo-platforms, while fees are kept under pressure. There is also a high possibility that robo-advisory will eventually cannibalize or encroach upon mutual funds and human advisory services, which, combined with the changing landscape of fiduciary regulation in Canada, will also begin to see pressure on their fee structures.

Should you invest with robo-advisors?

Ultimately, the answer lies entirely with your degree of customization. Generally, robo-advisors have little to no contact/feedback with the client once the initial policy statement has been established. While you can track your portfolio’s progress, you can give zero input on its direction, nor will robo-advisors offer anything more complex than the most liquid of ETFs.

Obviously, those of who wish to invest in actual stocks like Canopy Growth Corp (TSX:WEED), for example, or are students of the markets (Foolish readers should check out our Pro 2017 Survival Guide to turbocharge their portfolios) should stick with self-directed investing.

However, the low-cost structure of robo-investing is quite tempting. With most places charging just 1% of AUM, there is no reason to not consider a well-balanced portfolio that’s managed by an emotionless program at a fee equal to that of an index fund. Currently, robo-advisory’s appeal lies with the under-40 crowd with less than $100 thousand worth of investable assets. So, if you’re young, tech savvy, and looking to start a small, low-maintenance retirement account, then robo-advisory might be the way to go.

The post Should You Invest With a Robo-Advisor? appeared first on The Motley Fool Canada.

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After last week’s surprise build in U.S. inventories, crude oil is once again trading below $50/bbl. This is great news for those looking to gain exposure to some of Canada’s best oil names at cheap valuations. One such company, which happens to be my favourite pick of the sector, is Vermilion Energy Inc. (TSX:VET)(NYSE:VET).

Strong 2016 results

Vermilion delivered excellent results for FY 2016, even though average WTI reference prices were roughly $43.32/bbl compared to $48.80/bbl. As per official filings, 2016 production volumes increased by 16% to 63,256 boe/d at the upper end of its guidance of 63,500 boe/d. Furthermore, the increase in production was achieved while reducing capital spending on exploration and developmental projects by 50% from the year prior.

On the reserve side of things, proved reserves increased 9% to 175.8 million boe, while total proved plus probable reserves increased 11% to 290.1 million boe.

Stable dividend

Despite the sluggish commodity landscape in 2016, Vermilion paid cash dividends per share of $0.645 for a very manageable payout ratio of 70% of funds flow from operations. Moreover, if you had any doubts about Vermilion’s ability to sustain its 5% yield in the event of oil prices revisiting $40/bbl, have no fear: the company has never once cut its dividend since it was first introduced in 2003.

In other words, for Vermilion, the dividend has always been taken into consideration when it comes to capital-spending decisions, and management has reiterated its commitment to maintain the generous payout no matter the realized oil price.

International growth and capital efficiency add to the bull thesis

Finally, Vermilion has always delivered operational excellence. For example, Vermilion increased its proven developed and producing reserves by 11% in 2016, while delivering a sector-leading 4.1 reserve ratio. Moreover, I expect this operational excellence to continue as Vermilion increases its presence in Europe, where the company recently completed additional wells in France and the Netherlands, while partnering with major E&P players in Eastern Europe.

And if oil continues to sell off?

Now, I know what you’re thinking: what if oil goes back to $40 (or worse)? Well, as previously mentioned, Vermilion has never cut its dividend, and its hefty payout survived the worst of the oil route in 2016. But if you like to hedge your investments, then why not complement Vermilion with a stock that benefits from lower oil prices. One such name would be gas station operator Alimentation Couche Tard Inc. (TSX:ATD.B), whose margins will increase with lower oil.

In a nutshell, the recent oil sell-off has presented some great buying opportunities for quality Canadian oil names. With excellent results in 2016, and a dividend which has made it out of the wringer intact, why not take advantage of the market’s overreaction and snatch up Vermilion at a sizable discount?

The post Why I’m Using the Oil Sell-Off to Buy This High-Yielding Stock appeared first on The Motley Fool Canada.

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It would seem that OPEC’s much-lauded production cuts are having the opposite of their intended effect. According to media outlets, U.S. commercial crude supplies have been rising for nine straight weeks in response to the oil price rally, culminating in the production of 528.4 million barrels last week.

Moreover, Wednesday’s surprise build of an 8.2-million-barrel increase from the week prior signaled that cash-strapped North American producers are not slowing down anytime soon, and oil’s supply glut might continue into the near future. This, of course, doesn’t bode well for Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG), whose twice-slashed dividend forecast is based on $52/bbl oil.

Preparing for the worst-case scenario: a dividend suspension/cut

Even before the recent sell-off, Canada’s most prolific driller was already trading at a discounted valuation (25% to peers according to Barclays’s estimates) thanks to the company’s reputation of being a serial equity issuer. Now that oil is once again below $50/bbl, there is another infraction from Crescent Point’s past that might come back to haunt the company: a suspension or a further cut of its dividend.

Let me explain.

When Crescent Point cut its dividend from $.10 per share to $.03 per share in early 2016, its funds flow from operations payout ratio was roughly 62%. Recently, Crescent Point targeted a 100% payout ratio for 2017 based on WTI at $52/bbl. Moreover, according to company filings, Crescent Point’s exhibits a +/- $50 million sensitivity to per-dollar changes in the price of oil, meaning that if oil were to once again hit $45/bbl (or lower), Crescent Point’s funds flow from operations will come in $350 million lighter, and the dividend could very well be in jeopardy with an already restrictive payout ratio.

Furthermore, the potential of a dividend cut or suspension is all the more reasonable, given that Crescent Point is effectively barred from further equity raises (unless it wishes to further erode investor confidence, following the last bought deal in September 2016), and management has been hesitant to take on further debt.

There are silver linings

Although a dividend suspension would, of course, be the absolute worst-case scenario for shareholders, there are a few factors that make Crescent Point a worthwhile investment, even at sub-$50 oil.

Firstly, Crescent Point has a great liquidity position of some $3.5 billion in net debt for a 1.9 times debt-to-cash flow ratio, which is in line with the rest of the industry.

Secondly, management has made no made no secret that it is exploring asset sales, and while divestitures were only $30 million in 2016, we can expect bigger asset sales if oil prices continue to decline.

Finally, Crescent Point has improved tremendously from a cost-efficiency standpoint with 2016 costs coming in at $11.27/boe (8% better than target) and 40% below FY 2014.

The bottom line

Once again, we have to prepare for oil to be lower for longer; for Crescent Point, this means we have to consider the very real possibility of a dividend suspension. Of course, countering the worst-case scenario is the company’s solid balance sheet and strong operational fundamentals. With that being said, if you’re looking to take advantage of the oil sell-off (and Crescent Point’s discounted valuation), then the shares are looking like a great buy here — just as long as you are prepared for the worst.

The post Oil Has Broken $50/bbl: What This Means for Crescent Point Energy Corp. appeared first on The Motley Fool Canada.

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Now that you’ve made the cut-off and managed to make your RRSP contribution, you’re probably wondering what stocks to buy and hold for the future. One name that should be familiar to most Canadian investors is Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG), which is currently trading at a steep discount to its peers. But does Crescent Point belong in your RRSP? Read on to find out.

Strong Q4 results paints rosy picture

Crescent Point’s Q4 results came in ahead of analyst expectations with cash flow per share of $.77 and production volumes of 165,000 boe/d. Moreover, capital spending for the year came in at the guidance of $1.1 billion, while the company ended the year with net debt of $3.7 billion, or 2.2 times its cash flow.

Following the upbeat earnings, the company also reiterated its 2017 guidance with exit production figures of 183,000 boe/d (10% higher on an absolute basis than 2016’s volumes) based on capex of $1.45 billion and a targeted payout ratio of 100% of funds flow from operations at US $52/bbl oil. Moreover, the bulk of the spending is focused on the Williston Basin, where the company is expecting 5% regional growth with the rest of the spending divided between southwest Saskatchewan and the high-growth Uinta Basin in Utah.

That being said, although Q4 results left little to be desired, 2016’s slump in oil prices did weigh on Crescent Point’s reserves. Thanks to lower oil prices, Crescent Point’s future revenues from proven plus probable reserves fell 1.7% to $71.766 billion from $73.04 billion in 2015.

Discount is hard to ignore

According to estimates from Barclays Capital, Crescent Point is trading at a 25% discount to peers. This is quite evident by the price action of Crescent Point’s stock; the stock has sharply decoupled from crude spot prices, which continue to trade firmly about US $50/bbl.

So, what gives?

There are three possible reasons why Crescent Point is trading the way it is.

One, Canadian oil names have experienced selling pressure across the board, stemming from the threat of a protectionist border taxes in the United States.

Two, there’s market skepticism (albeit dissipating skepticism) around OPEC’s ability to cut output and Crescent Point’s ability to maintain a dividend, which is contingent on oil staying at about US $50/bbl.

And finally, perhaps the most important reason behind Crescent Point’s discounted valuation, is the fact that management’s reputation among investors took a hit when it raised equity while the stock was languishing in the mid-teens in 2016. Based on the sharp sell-off that followed last year’s equity issuance, however, I believe that management has learned their lesson. In other words, if I had to surmise, I doubt we will be seeing another equity raise from Crescent Point in the near future (at least not at these prices).

So, to answer the original question, yes, Crescent Point does belong in your RRSP. However, do not go overboard here, even though the discount is tempting, as oil prices could go south the moment there is a perceived failure in OPEC’s cooperation. Furthermore, we have yet to see anything concrete from the Trump administration concerning border taxes, and a steep protectionist tax could have drastic consequences for the entire Canadian oil industry.

The post Does Crescent Point Energy Corp. Belong in Your RRSP? appeared first on The Motley Fool Canada.

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Recently, Warren Buffett released his annual letter to the shareholders of Berkshire Hathaway Inc. These letters offer an incredible amount of wisdom and insight from the Oracle of Omaha, and there was one particular topic from this year’s edition that should resonate with Canopy Growth Corp. (TSX:WEED) investors: share-based acquisitions.

Buffett laments over share-based acquisitions

Buffett begins by lamenting over two of his rare duds: his purchase of Dexter Shoes and General Reinsurance. But it’s not just the heavy losses borne by these investments that Buffett was so critical about; rather, he was critical of the fact that he used Berkshire Hathaway shares to fund them.

When Buffett bought the now defunct Dexter Shoes for $434 million in 1993, he issued 25,203 BKB.A shares to pay for the purchase. Now those shares are worth nearly $6.5 billion, by Buffett’s own admission, 1.6% of a fantastic company was given up to buy a worthless business with zero competitive advantages.

Now, in the case of General Reinsurance, Berkshire fared much better; currently, “General Re” is still around and providing Berkshire with a stable cash float. However, when it was first purchased, Berkshire’s total shares outstanding increased by 21.8% to pay for the acquisition. Moreover, following the buyout, General Re’s operating earnings dropped to $151 million from $250 million in the wake of the 9/11 attacks.

There are, of course, clear parallels that can be drawn from Warren Buffet’s experiences and Canopy. For example, Canopy is nowhere near profitable and has continued to issue shares to make further acquisitions. Of course, this raises the question of how much of a great company like Canopy are shareholders willing to give up for the occasional dud.

After all, even if someone as highly regarded as Warren Buffett, who only goes after stable, cash-generating enterprises, is not immune to underperformance, who is to say Canopy might not stumble on a speed bump or two in this still very nascent industry?

And, as a matter of fact, some of those speed bumps have already begun to show themselves. Canopy’s last earnings report saw a write-down of $800, 000 in the wake of its Mettrum acquisition following a high-profile recall of pesticide-tainted plants. Moreover, supply-chain issues continue to plague Mettrum, which contributed to less than 10% of Canopy’s inventory being available for sale in the last quarter.

Do these latest developments mean that we should write off Canopy completely? Absolutely not; Canopy (and its 50,000 patients) is still the best overall bet for the legalized marijuana market in Canada. However, investors, current and prospective, must be willing to ask how much dilution they are willing to put up with in Canopy’s bid for dominance.

The post What Canopy Growth Corp. Investors Can Take Away From Warren Buffett’s Annual Letter appeared first on The Motley Fool Canada.

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Is Valeant Pharmaceuticals Intl Inc. (TSX:VRX)(NYSE:VRX) investable?

While the quick answer to this seemingly straightforward question might be a resounding “no,” thanks to Valeant’s scandalous history and $30 billion worth of debt on US$5.4 billion market cap, there are three positive factors of Valeant that make it hard to dismiss the company outright.

Core and non-core asset sales provide a lifeline

Valeant is in the midst of a turnaround with a major focus on deleveraging the company by $5 billion by 2018. The quickest way for Valeant to address its debt burden would be through asset sales (both core and non-core) and strong free cash flow generation.

And it would appear that after a few initial setbacks, the company is finally making headway; the company sold its skincare brands to L’Oreal for $1.3 billion earlier this year. Of course, the market would like to see more divestitures; many are hoping for sales of Valeant’s core ophthalmology and gastrointestinal brands, Bausch and Lomb, and Salix, of which the combined proceeds could fetch up to $20 billion, per Barclay’s estimates.

That being said, while core asset sales will bring in much-needed cash into the coffers, the company might be trading off a significant amount of future earnings from these brands; the more feasible path entails non-core asset sales, which would fetch $8-12 billion for the company.

Loss of exclusivity might not be that severe

Aside from its debt, the other hotly debated topic regarding Valeant pertains to the loss of exclusivity for some of its key drugs. In fact, Valeant has gone on record with an estimated $800 million revenue loss — 60% of which will hit in 2017 thanks to this loss of exclusivity. However, estimates from Barclays are far less bearish: the bank forecasts the revenue impact to be around $650 million in 2017 as the drugs facing patent expiry have little or no immediate generic competition.

Robust pipeline means future free cash flow opportunities

Finally, a bullish case can be built around Valeant’s fairly robust pipeline. One such name that could generate free cash flow for the firm is Brodalumab, Valeant’s psoriasis drug, which is expected to launch later this year. According to Barclays, while the psoriasis market is crowded, Brodalumba has demonstrated strong efficacy in clinical trials and could eventually reach peak sales of $739 million by 2023.

Furthermore, Valeant’s second psoriasis drug, IDP-118, currently in phase three trials, has demonstrated strong efficacy in the top-line results released in December 2016. Barclays estimates a broadly addressable market as IDP-118 is topical in nature, and the vast majority of psoriasis patients are treated with topical regimens.

Finally, a more near-term pipeline opportunity is Vyzulti, Valeant’s open-angle glaucoma product. With a total addressable market of 1.5 million patients, Barclays estimates Vyzulti to launch in the second half of 2017, pending FDA approval, and eventually hit peak sales of $211 million by 2025.

The bottom line

As you can see, the question of whether or not Valeant is investable is a tricky one to answer. While we can quickly dismiss the troubled company thanks to its high levels of debt, due diligence dictates that we also look at all the positive factors that could signal a rebound for the company. With the potential of divestures, lower than expected revenue impacts from loss of exclusivity and a robust pipeline, Valeant may very well be an investable offering for the contrarian investor.

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But fear not; if you’re an income investor looking to partake in the marijuana craze, you’re in luck, as Canada’s largest industrial landlord Pure Industrial Real Estate Trust (TSX:AAR.UN) is looking to make a bet on pot.

PIRET’s pot bet

Pure Industrial Real Estate Trust (also known as PIRET) is a name that should already be familiar to Canadian dividend investors. After all, it is the largest industrial landlord on the TSX with over 21 million square feet of rental space across 166 properties in the U.S. and Canada.

And according to a recent article from Bloomberg, PIRET intends to expand its total rental space almost two-fold to 40 million square feet as it looks to provide warehousing space for e-commerce clients and marijuana producers. As per CEO Kevin Gorrie, while PIRET will not be providing a space for producers to grow their weed, the company is in active negotiations with an unnamed marijuana distributor in Brampton, Ontario, which is seeking storage space for its products.

Best-in-class fundamentals

Even if you’re not into the whole pot thing, PIRET is still the best industrial REIT in Canada. Recently, PIRET finished off a strong third quarter in its 2016 fiscal year, which saw net operating income (NOI) and funds from operations increased 9.5% and 7.6% year over year, respectively.

Moreover, occupancy rates for the quarter also came in strongly at 95.3%, compared to 94.6% in December 2015. More importantly for dividend investors, PIRET currently pays a juicy 5.2% yield, even after accounting for the stock’s recent run up in price. This yield is also quite safe for the time being as PIRET’s payout comprises just 87.5% of its adjusted funds from operations (compared to 88.8% last year), while its debt-to-gross-book-value ratio comes in at a very manageable 43.4%.

While PIRET is currently trading within its historical valuation range and is relatively equal to its net asset value (as per Bank of Nova Scotia estimates), I believe there is still room to run here as PIRET is leveraged to grow in the marijuana industry and North American e-commerce — an industry projected to reach $2.4 trillion by 2018, according to Bloomberg, as nearly 28% of its revenue is derived from its biggest client, FedEx.

The bottom line

Sooner than later, we are going to see legalized marijuana in this country, and industrial REITs such as PIRET are an excellent way to get in on the action, while collecting a passive-income stream. Furthermore, the availability of industrial space in Canada is at its lowest point in two years (it is also at its lowest in seven years down in the States) according to research from CBRE.

This means that more and more marijuana companies are going to reach out industrial landlords like PIRET, offering to pay a premium for space, as the industry begins to take off after legalization. Therefore, if you’re a little apprehensive about getting your feet wet with cannabis stocks, or are just looking for a good income stream, industrial REITs offer an excellent avenue into this budding sector.

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BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) has miraculously managed to stave off bankruptcy as it undergoes a difficult transition from being a hardware manufacturer to a software manufacturer. But before you think this once darling of the Canadian tech scene is a contrarian opportunity, take a look at these pros and cons.

First, the pros

There are currently three favourable factors going for BlackBerry during this transition.

First, the company has an excellent cash float, totaling $1 billion after subtracting out debt, as of the end of Q3 2017. This large cash position implies that the company is well equipped to take on accretive opportunities during their build-up phase or even buy back shares at these levels, especially as there are potentially dilutive debentures on the books.

Second, BlackBerry is the market leader in automotive “infotainment” (which is the collection of software and hardware features which are responsible for information and entertainment features within a vehicle) through its acquisition of QNX, whose systems are found in over 60 million cars worldwide. BlackBerry’s leadership in this field can also lead to further leveraging opportunities like forays into medical devices, advanced driver-assistant systems, as well as expansion into the ever-ubiquitous Internet of Things (IoT) which is evident by BlackBerry’s RADAR, an advanced IoT-based fleet tracking system.

Finally, a highly lucrative opportunity might be presented by BlackBerry’s hardware licensing. According to management commentary from the latest analyst presentation, with an estimated +50 million BlackBerry units circulating in the world and expected revenues of +$10 per account, we are looking at $500 million in licensing revenues alone at very high margins.

And now, the cons

Unfortunately, when it comes to BlackBerry, we have to be willing to take the good with the bad. For example, while BlackBerry’s QNX enjoys over 50% of the market share in the infotainment space, competitive offerings from Linux and Microsoft means that this dominance could be fleeting. Moreover, QNX makes up just a small portion of BlackBerry’s business; estimates from industry analysts point to just 2% of total revenues.

BlackBerry’s transition towards a pure software company is still in its infancy, and management provided no transparency regarding the breakdown of its software and services segment. Furthermore, even though management projected a 30% growth for this segment for the full fiscal year, accelerating losses in the service access fees (61% decline year over year) will largely cancel out software growth in the near term.

Finally, competitive pressures are looming on the horizon for BlackBerry’s largest contributor of software revenues: Enterprise Mobility Market (EEM).

According to a recent research report from Canaccord Genuity, growth for EEM is decelerating as competitive products score higher for general purpose users (as opposed to regulated industries) in industry surveys. Canaccord also noted that while BlackBerry did rank highly with general purpose users, BlackBerry’s key differentiation is security, and as general users are more focused on ease of implantation, cost, and app development, BlackBerry did not score as well as offerings from IBM and VMware.

The bottom line

Will BlackBerry’s large cash float and market dominance in infotainment be enough to overcome its perceived weaknesses? Right now, the stock is a “show me” story, but at these levels, it might be worth it to at least take a small bet that John Chen and co. can turn things around.

The post Before You Buy BlackBerry Ltd., Check Out These Pros and Cons appeared first on The Motley Fool Canada.

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