At Least Another Week of This Analyst War

Alexander is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The are few stocks that are more contentious today than the Canadian smartphone and services company BlackBerry (NASDAQ: BBRY). In the last few months, investors have suggested everything from conspiracy theories, to bear raids, to pump and dump and short and distorts. But while average investors buy and sell shares and post comments on stock talk sites, analysts from various companies are playing the game as well with some volatile share price results.

Upgrades and downgrades

If one is looking for evidence that analyst opinions can swing share price they only need to look at the movement of BlackBerry shares on June 18 and 19. On the 18th, RBC Dominion Securities painted an overall favorable picture of BlackBerry raising sales estimates and laying out the potential for a post-earnings squeeze. Shares rose strongly on the day from the $14.30s range to touch $15 before closing at $14.84.

But the next day, BlackBerry shares reversed previous gains and then some as an analyst from Bernstein noted “waning” enthusiasm for BB10 devices. By midday, shares were already down well into the low $14 range.

Of course this analyst conflict should be nothing new for BlackBerry shareholders. Notes from Wells Fargo, Morgan Stanley, Jefferies, Cannaccord, Detwiler Fenton, Pacific Crest, Citi, and many others have caused the share price to swing, sometimes more than five percent, on the day of the report’s release. Some will question the credibility behind reports from lesser known analysts but, whether or not the reports have any truth, they certainly have shown their market moving ability.

Tuning out the noise

There will always be plenty of analysts trying to guess the next path a company will take, but with so many options out there, there is no way that every analyst can be correct. Those looking for past examples of analyst predictions in the smartphone space may remember the Apple (NASDAQ: AAPL) price targets. Analysts had practically set up a bidding war for who could place the highest price target on Apple stock. First $800, then $850, then $900. And the worst part? The media was ready to congratulate the first analyst to stick a quadruple digit price target on Apple.

But the job of an analyst is to do their best to predict where a stock will be next, not just to be the first one to attach a big number price target. Since then, the wave of analyst bullishness has become a wave of analyst bearishness, but only after the share price fell from the $700 range to the mid $400 range. 

Despite Apple and BlackBerry being largely in the same industry, investors in both companies are aware of the massive size difference between the two tech companies. In Q2 2013 alone, Apple sold over 37 million iPhones and nearly 20 million iPads, numbers that dwarf BlackBerry's whole year expectations. Trading at only around 10 times earnings, Apple is not being given the same multiples as Google at 27 times earnings or BlackBerry, which investors are still waiting on to post positive full year earnings again. From a P/E perspective, Apple is not really overvalued, and a cult-like fan base should be there to buy the next iProduct whether it's a new phone, watch, or TV. Some may ask if it's possible to be bullish on both Apple and BlackBerry, and I believe the answer is yes. BlackBerry only needs a small part of the smartphone market to be successful, and Apple could easily make up for this small loss through growth in new markets and/or new products.

Some of the same analysts are likely covering both Apple and BlackBerry so just as Apple estimates should have been taken with a grain of salt, so should BlackBerry estimates, bullish or bearish.

Working overtime at the rumor mill

When a company has so much critical information behind closed corporate doors, people begin to speculate on what might be happening. Here, BlackBerry followers rise to the occasion with both bulls and bears guilty of this rumor building. Remember when a partnership or buyout by Lenovo (NASDAQOTH: LNVGY.PK) was imminent? Analysts began to see BlackBerry as an ideal partner for the Chinese electronics maker to move into the smartphone business. The feasibility of this deal was brought into question since a sale of BlackBerry to a Chinese company would pose a security threat to governments that use BlackBerry devices, something the Canadian government could potentially block.

Being a Chinese company has both its positives and negatives for Lenovo. On one hand, it has a prime spot in an emerging market where the government tends to favor homegrown companies over foreign ones. However, as the BlackBerry rumor experience demonstrates, Lenovo could have a tough time making foreign acquisitions due to a distrust of the Chinese government by foreign regulatory bodies. But even after Lenovo played down the rumor, it surfaced again weeks later only to die off once again as Lenovo largely ignored it and it was swamped by other BlackBerry related news.

While a lot of analyst reports on BlackBerry have been unfavorable, the report by Detwiler Fenton created the least favorable image of BlackBerry. The report asserted that BB10 phones were being returned faster than they were being sold, a terrible trend for BlackBerry if true. However, both BlackBerry and Verizon denied such rumors, and BlackBerry even requested that the SEC look into Detwiler Fenton’s reporting.

For at least another week

BlackBerry shares are not for the risk-adverse, conservative, or volatility-fearing investor. Shares have been on a wild ride facilitated by a shortage of actual news and a surplus of analyst reports. The volatility has has seen more swings in recent weeks as the Q1 earnings report approaches and analysts make last-minute adjustments to their numbers. Next Friday we will have the Q1 numbers. And you can bet the analysts will be all over those ones.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Alexander MacLennan owns shares of BlackBerry. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus