What’s on the docket today? An ad for Jim Woods’ Successful Investing, which seems to be a newly revamped version of that longtime “entry level” investment newsletter (founded by Dick Fabian — Jim took over the Successful line of letters when Dick’s son, Doug Fabian, left the newsletter business in 2017). The letter is being pitched at $49/year, and this is the intro that caught the attention of our eagle-eyed Gumshoe readers:
“Why Would One of the World’s Smartest Investors Sink $522 Million Dollars Into a “Busted” Tech Stock?
“Because even if it only makes it back to half its former share price, he’ll pocket 650% gains.”
I’d challenge you to find a serious institutional investor who puts millions on the line because “it might get back to half of its former price” — that’s just inane.
But still, we want to ID the “secret” stock for you, so we’ll take that silliness in stride. What else are we told here?
“One of the smartest and most successful investors in the world has been secretly buying shares in a tech stock that most investors have turned their backs on.
“His goal? To make a killing.”
So what’s the stock?
“This company was once a market leader, with a 40% market share of one of the most indispensable pieces of personal technology anywhere on the planet.
“Its name was synonymous with its signature product, like ‘Kleenex’ for tissue or ‘Xerox’ for copiers.”
Curiouser and curiouser… what could it be? More clues…
“Today, you can get shares of a former tech titan at a 95% discount to its historical high.
“They’re going for about $10 each, which is $220 less than their all-time-high share price.
“Usually, a price plunge like that indicates a company’s on its last legs. But not here…
“That’s because one well-known investor has been betting big – HUGE really – on this left-for-dead tech play.”
How big is this mysterious investor “betting?”
“At today’s share price, he’s in for a staggering $522,000,000 – that’s $522 million or about 1/3 of his entire portfolio.”
Wow… OK, even to those of us who shampoo with Dom Perignon, that’s a lotta dough. Who is this guy? Why does he love this beaten-down stock? And, well, what is the stock?
Woods says that “even if shares only return to half their former $230 glory, that’ll still be a 650% gain for the renegade trader I just told you about.”
Ready for your answers? As luck would have it, this one is related to my portfolio… so we don’t even have to fire up the Thinkolator today.
Prem Watsa is probably not the person you picture when someone says, “renegade trader” … but yes, he does make some big bets with the equity portfolio of Fairfax Financial (FF.TO, FRFHF), the growing Canada-based insurance conglomerate that he runs and which is often compared to Berkshire Hathaway (BRK-A, BRK-B)… and one of those bets is this “secret” stock, the Canadian tech pioneer Blackberry (BB).
Remember carrying a Blackberry around, filing your thumbnails to a point so you could press those tiny little buttons on the keyboard? Yes, you can still get them… but Blackberry isn’t focused on developing or selling new phones anymore, not after playing “hare” in the tortoise and hare smartphone race and forgetting to watch out for both Google’s Android and Apple’s iPhone coming up behind them. They even have a new phone out this month, the Key2, with a redesigned keyboard for the diehards who still insist on a physical QWERTY keyboard.
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But those new Blackberry Mobile phones are only tangentially related to the fate of Blackberry the company, which licensed its almost-dead mobile phone brand to a Chinese company, TCL, a couple years ago (the Key1 and Key2 are from that new company, they both run Blackberry’s secure systems but are also based on Android). The surviving Blackberry company that Fairfax owns shares of, and that’s being teased here, is really now a software company, not a hardware company, and they are focused on security — their big spiel these days is all about “EoT”, the “Enterprise of Things” which they say “enables digital transformation using hyper-connected ‘things’ that are highly secure.”
They report at the end of next week, so we may learn something new by then, but the basic idea is that wearables and other devices, including cars and phones and robots and whatever else, need connectivity to be useful, and connectivity increases security risks, so therefore the “enterprise” needs something more secure than regular consumers might demand. They’re expecting that a holistic approach to security using Blackberry Secure will make companies feel much more comfortable with their private data.
The transformation of the company, from a failed handset maker to a software and services company that leverages their expertise in security, has taken a few years but is almost complete now. Software and services last year were more than 80% of revenue, and, not surprisingly, that has improved margins (software is typically higher-margin than hardware, since it’s more instantly and inexpensively scalable). Their annual analyst meeting presentation ended with their objectives, which are built around accelerating the “EoT