I have been bullish on this tech stock since November 2022, when the tech bubble burst ended. This stock has been waiting for years for a turnaround, and it has now come closer to its target of running a profitable business. The stock is BlackBerry (TSX:BB), which lost 60% value in the tech stock selloff between November 2021 and October 2022.
Along with the tech sector’s bearishness, the stock saw a slowdown in fundamentals because of its exposure to the automotive sector. The short-term weakness has not affected its long-term secular growth trends. You can add more BlackBerry shares to your existing pool and reduce costs.
Why am I bullish on BlackBerry stock?
After falling throughout 2022, BlackBerry stock surged 14% on March 31 when the company announced its fourth-quarter earnings. The company reported its first growth in two years in the Internet of Things (IoT) segment. BlackBerry switched its focus from hardware to software after Apple disrupted BlackBerry’s mobile phone market in 2007 by launching iPhone.
The new BlackBerry is tapping the endpoint cybersecurity management and QNX software platform for IoT devices. BlackBerry’s cybersecurity business caters to the governments of 17 of the G20 countries. Government contracts have been facing delays due to weak macroeconomic conditions. BlackBerry’s IoT business is focused on automotive verticals, securing design wins from the automotive supply chain. This segment earns royalty in the design phase and the production phase. The delays in automotive production due to supply constraints have stagnated BlackBerry’s IoT revenue.
In 2023, automotive production recovered slightly, as supply issues began to ease. BlackBerry reported its first quarterly revenue growth in two years in the fourth quarter. It also secured the first design win for its IVY vehicle intelligence platform, opening a new revenue pipeline. The company still has a huge QNX royalty backlog of $640 million (up from $560 million in the first quarter) that will unlock, as QNX-powered cars are shipped. However, this unlocking may take some time, as a looming recession delays automotive sales growth.
While the IoT and cybersecurity revenues face delays, BlackBerry completed the sale of its patent business. This sale could bring up to $900 million on the achievement of milestones. The first cash instalment of $170 million will come when the agreement closes, followed by a royalty on the profit generated from those patents.
Why is BlackBerry stock a buy in 2023?
The current macroeconomic environment has been bearish for BlackBerry, but its $487 million cash reserve and no debt can fund the company’s losses. Moreover, the long-term secular trend from IoT and automotive remains unchanged. The net-zero carbon emission target and growing gasoline prices have pushed electric vehicle (EV) adoption.
Automakers and tech companies are launching new EV models and looking at BlackBerry for software support. BlackBerry has partnered with 24 of the top 25 EV makers and has secured design wins from the likes of Volkswagen and Hyundai. A looming recession could pull automotive stocks to the bottom, as the reduced purchasing power of consumers could significantly hit demand. But these stocks could bounce in recovery, rewarding you for your patience.
But finding the right automaker is a challenge, as the growing competition could add significant volatility. A supplier that caters to all or most automakers can help you benefit from the overall EV growth while reducing the risk of competition.
Moreover, the growing adoption of 5G has set the stage for IoT proliferation, especially for mission-critical applications that need high endpoint security. The IoT revolution could drive demand for BlackBerry’s solutions, and the company would be ready with its scalable software.
Adding to BlackBerry shares
To make good money in stocks, you can invest in high-growth stocks before the rest of the market. If you decide to invest 5% of your portfolio in such growth stocks, maintain that percentage every year when you invest in stocks. For instance, if you invested $6,000 this year, you can use $300 (5% of $6,000) to add 50 Blackberry shares to your portfolio and reduce your total purchase cost. Even a $1 reduction in your cost per share can significantly add to your earnings.
