Yacktman Bets BlackBerry Can Survive Market-Share Plunge
Donald Yacktman, whose $19 billion mutual-fund firm has outperformed peers by picking undervalued stocks, is leading a rush of investors betting Research In Motion Ltd. (RIM) and its BlackBerry smartphone can recover.
Yacktman Asset Management bought 12.2 million RIM shares last quarter, doubling the firm’s stake to about $252 million, according to data compiled by Bloomberg. Yacktman sees value in the BlackBerry’s 80 million users worldwide, its physical keyboard and the promise of a new operating system, even as the phone’s U.S. market share drops to less than 2 percent from 8.5 percent a year ago.
“People do like to use the keyboard, and there is a big embedded base,” Yacktman said in a telephone interview from Austin, Texas. “This company could be worth a lot more.”
His increased investment may have made Yacktman $34 million to $59 million as of today’s close, given he bought the stock between the quarterly highs and lows of $6.31 and $8.29. Yacktman doesn’t disclose the exact day on which he buys or sells a stock. RIM has climbed 76 percent since Sept. 24, when the most recent rally began.
Yacktman relies more than peers on picking individual stocks rather than indexes, a strategy that helped his firm outperform other mutual funds in the longest economic slump since the Great Depression. The $7.1 billion Yacktman Focused Fund (YAFFX) has returned 12 percent over the past five years, putting it in the top 1 percent of comparable funds, data compiled by Bloomberg show.
The first BlackBerry 10 phones will go on sale in February, following a delay of more than a year. The lack of new models has made it harder for RIM to compete with Apple Inc. (AAPL)’s iPhone and devices that run Google Inc. (GOOG)’s Android. RIM accounted for just 1.6 percent of U.S. smartphone sales during the 10-week period ended Oct. 28, research firm Kantar Worldpanel ComTech reported yesterday. That compares with 48 percent for Apple and 47 percent for Android.
RIM shares rose 3.5 percent to $11.10 in New York today. The stock tumbled 11 percent yesterday following the Kantar report. Before that, RIM had climbed for eight straight days, its longest rally in four years.
Yacktman’s firm increased its RIM stake to 4.5 percent by the end of last quarter, making it the fifth-largest shareholder, according to data compiled by Bloomberg.
Fairfax Financial Holdings Ltd. (FFH), founded by RIM board member Prem Watsa, is the biggest investor. RIM co-founders Mike Lazaridis and Jim Balsillie are second and third, followed by Primecap Management Co.
Still, Morgan Stanley (MS) analyst Ehud Gelblum chalks up the stock’s run-up to “irrational exuberance.” While that optimism may help maintain the shares over the next two to three months, there’s no evidence that BB10 can even become the industry’s third-place finisher, he said this week in a report. Microsoft Corp. (MSFT)’s Windows Phone is vying for the No. 3 spot, and its market share has already vaulted past RIM’s in the U.S.
RIM is counting on BB10 and pent-up demand from its installed base of 80 million subscribers worldwide to break a five-quarter streak of declining year-over-year revenue. Chief Executive Officer Thorsten Heins also expects a wave of upgrades from RIM’s government customers, he said in an interview in Washington this month.
Other investors have been raising their stakes in RIM. Renaissance Technologies Corp. bought 9.9 million shares last quarter, increasing its stake to 3.2 percent. Viking Global Investors LP bought 4.6 million shares, having previously held none. And Franklin Resources Inc. (BEN) raised its stake by 3.9 million shares to 3.3 percent.
Some investors may be wagering that some or all of RIM will be acquired, providing a payday even if BB10 fails. RIM hired JPMorgan Chase & Co. (JPM) and RBC Capital Markets in May to help explore its strategic options, though Heins said in September that its focus is on negotiating a software licensing deal or other partnership.
Jefferies & Co. and Canadian Imperial Bank of Commerce raised their ratings on RIM this month. Even short-selling investors, who had previously bet on RIM shares falling, have bought into the stock. Ironfire Capital LLC President Eric Jackson said he bought an undisclosed number of shares last week.
“Most are greatly underestimating how many loyal subscribers will upgrade to BB10 in calendar 2013,” Jackson said in Toronto on Nov. 22.
New technology may not be enough to reverse the tide for RIM, said Morgan Stanley’s Gelblum. He cites Palm Inc.’s WebOS, which failed to turn around the company even after being well received in 2009. Palm was bought by Hewlett-Packard Co. (HPQ) the following year, and the WebOS products were eventually scrapped.
“Ultimately we believe BB10 is too late,” Gelblum said in the report.
Sixteen analysts recommend selling RIM’s stock. Twenty- eight others have the equivalent of a hold rating, and six recommend buying the shares.
There’s still a lot to like as a RIM investor, aside from BlackBerry 10’s prospects, Yacktman said. The company had more than $2 billion in cash and short-term investments last quarter, up from the previous three months. Its intellectual property also may be valuable to an acquirer.
“Cash, patents and embedded base -- it seemed to us there’s a fair bit of value there,” he said. “And that’s why we’ve done what we’ve done.”
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