Not so fruitful

Dried Berries
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BlackBerry Stock Is NOT a Buy Under $10

BlackBerry (BBRY) is back in the single digits, and there it will stay.

Shares remain above 2012 lows, yes, but are below $10 to tally a 50% flop from highs of $18 in January. And as I have said many times — most recently to start the month — BlackBerry stock has no hopes of recovering anytime soon.

The reasons are simple: The stock had gapped up to start the year based on hopes of a turnaround thanks to the BB10 operating system and a new line of BlackBerry smartphones in the Z10 and Q10. However, BBRY has failed to live up to expectations, and investors are giving up hope.

The latest catalyst was a surprise quarterly loss after disappointing device sales. It’s hard for BBRY to make excuses about those numbers — most notably the fact that the new line of BlackBerry smartphones made up just 40% of quarterly sales despite several months since a highly-touted launch for the gadgets.

This disappointment came even as two top competitors, Samsung (SSNLF) and HTC, posted quarterly sales reports that fell short of expectations. You would think that weakness would mean an opportunity for BBRY to step in … but apparently not.

Anyone hoping that a refresh would put BlackBerry on equal footing with Google (GOOG) and Apple (AAPL) was simply being naïve. The iPhone remains wildly popular with consumers and the sheer reach of Android thanks to phones make both Apple and Google almost uncatchable in the near-term.

But it wasn’t outside the realm of possibility for BB10 to give Microsoft’s (MSFT) Windows Phones a run for their money. But unfortunately for BBRY investors, that hope of enterprise inroads hasn’t been as fruitful as expected.

So where does BBRY stock go from here? Well, if you believe BlackBerry CEO Thorsten Heins, we haven’t even started to see what the new line of devices can do. Heins asserted BlackBerry is “still in our launch cycle” and that the company simply needs more time to spend on marketing and device rollouts to achieve dominance once more.

Investors shouldn’t buy that. BlackBerry remains unprofitable, as the latest earnings report just proved, and will be only slightly better than break-even this fiscal year if it continues to fall short of expectations.

Wall Street seems to have moved decidedly from giving BlackBerry the benefit of the doubt to expecting BBRY to fail. To start the month, the stock was downgraded from “buy” to “hold” at Societe Generale on Monday after disappointing numbers. Analysts at Needham & Company and Deutsche Bank also downgraded BlackBerry after the results.

Elsewhere, FBR reiterated its “underperform” rating while dropping its target from $11 to $9, and UBS kept BBRY at “neutral” but dropped its target from $13 to $10. So with investor negativity and sales numbers disappointing, the tape should continue to trend decidedly down in the weeks ahead.

Proponents point to software and other assets that are being undervalued by Wall Street amid the focus on BB10 launches. And it’s true that BlackBerry has traded at a fraction of its book value for some time — even during the big run to start 2013.

But despite $630 million in cash flow from operations and about $2.8 billion in cash, the undeniable reality is that the company will bleed itself dry without a successful line of hardware. Maybe not anytime soon, of course, but inevitably BlackBerry will fade away if it can’t get smartphones right. Judging by recent BBRY stock declines, investors aren’t willing to stick around to wait and see if the company can get it right.

If you’re still hanging on to this stock, you should follow their lead.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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