Recently, Blackberry (NASDAQ: BBRY) experienced a significant drop of nearly 27.5% in only $10.50 per share within one trading day. The free fall of the stock price might be due to the company's sluggish first quarter earnings results. Dated back to the company’s heyday in the middle of 2007, Blackberry was trading at more than $230 per share with a the total market cap of more than $120 billion. At the time of writing, Blackberry was sold on the market at only $5.5 billion. Personally, I think it was too cheap.
Blackberry’s sluggish shipments
In the first quarter of 2014, Blackberry's revenue came in at more than $3 billion, around 7% higher than its revenue in the first quarter of last year. The company's gross margin experienced decent improvement, from 28% last year to 33.9% this year. The company reported that it had shipped around 6.8 million smartphones in the recent quarter, including 2.7 million new Blackberry 10 phones. The shipment volume came short of analysts’ expectations of 7.5 million shipments, including 3.6 million Blackberry 10 phones.
In the smartphone world, Samsung (NASDAQOTH: SSNLF) is still the global leader. According to IDC, Samsung shipped 70.7 million units in the first quarter 2013, a significant growth of 60.7% compared to 44 million unit shipments in the first quarter of last year. It holds the number one position with a 32.7% market share in the smartphone industry.Apple (NASDAQ: AAPL) ranked second with a much lower number of shipments due to slower growth in the recent quarter. With 37.4 million unit shipments in the first quarter, Apple’s market share stayed at 17.3%.
In the first quarter of 2014, the company generated a loss of $84 million or -$0.16 per share. Blackberry also mentioned that the Venezuela foreign currency restrictions had around $0.10 per share impact on the reported GAAP earnings per share. The company's operating cash flow was positive at $630 million. What I like about Blackberry is its conservative capital structure; as of June 2013, it had nearly $9.4 billion in equity, more than $2.8 billion in cash and short-term investments, and no debt. Its intangible assets came in at more than $3.5 billion.
Prem Watsa is bullish about Blackberry
Prem Watsa, the “Canadian Warren Buffett,” is the 10% owner of the company. He is quite bullish about the company's ongoing turnaround under the leadership of CEO Thorsten Heins. Although there is a lot of competition in the smartphone industry including Apple, Samsung and Google, the he believed that smartphone market would be a fast growing market. Watsa pointed out that Blackberry still has around 75 million users in the world and its product catch is security. He thinks that Blackberry, with its unique security level, still has its place in the market. Of course, the turnaround would take a lot of time and there would be more ups and downs along the way. In the long-term, Watsa believes that Blackberry’s fair value is around $40 per share.
Samsung with its preferred stocks
At $10.50 per share, Blackberry is valued at only 3.6 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization). Apple has a much higher valuation, trading at $396.50 per share with a total market cap of $372.2 billion. The market values Apple at around 6.1 times its trailing EBITDA.
Interestingly, what might make investors excited is Samsung with its low valuation. The global smartphone leader has the similar valuation to that of Blackberry. Samsung is trading at $1,140 per share, with the total market cap of $149.20 billion. It is valued at only 3.6 times its trailing EBITDA.
Li Lu, the money manager for Charlie Munger, liked Samsung preferred stocks in particular and South Korean preferred in general as they are traded at a deep discount to common stock. The cheapness was due to the irrational perception that they were not debt or equity. In the Korean market, while Samsung common is trading at 1,342,000 Korean won, its preferred stock is only 840,000 Korean won which is a nearly 40% discount to the common share price.
Apple with its potentially high total yield
Apple could also make a good compelling investment case. The company recently took advantage of the low debt financing by issuing $17 billion in bonds with a rate equivalent to the highest-rated AAA companies in the world, ranging from 0.511% to only 3.883%. By using its cash on hand and recent debt financing, the company intends to return $100 billion in cash in the next two years via dividends and share repurchases. It has already announced raising its share buyback amount by $50 billion to $60 billion, while increasing its dividend to $3.05 per share. At the current trading price, Apple’s dividend yield is quite juicy at 3%.
My Foolish take
All three of these tech giants, Apple, Samsung and Blackberry, could fit well in the long-term portfolios of technology investors. Apple could potentially produce a total yield at 26.8%, including buybacks and dividends, in the next two years if it executes its $100 billion cash return plan. While investors could view profitable Samsung, the global leader in smartphone industry, is quite cheap due to its quite low EBITDA multiple, Blackberry could be seen as a turnaround play with the backup of one of the most successful investors in the world, Prem Watsa. To conclude, Francis Chou once commented that Blackberry’spatents alone were already worth more than $13 per share, 30% higher than its current trading price.
Disclosure: Long BBRY, AAPL