Stocktake: Has the music stopped for Blackberry?
The prospect of a Blackberry takeover begs the question: why? The crisis-hit smartphone company has agreed a tentative $4.7 billion (€3.5 billion) deal with a consortium led by Canadian insurer Fairfax, Blackberry’s largest shareholder.
Just days earlier, Blackberry had announced an earnings miss of almost $1 billion – possibly “the worst miss that we have seen in 17 years of covering tech stocks”, said Nomura.
Usually, investors expect a higher bid to drive a firm’s stock price above the offer price. However, Blackberry shares soon fell to $8, below the $9 offer price.
Fairfax’s “letter of intent” to buy Blackberry is not binding. It has no financing in place.
Its shareholding has already lost it hundreds of millions of dollars; with the bid coming days after another share price panic, it’s easy to see this as a desperate ploy to flush out a bidder and put a floor under the stock.
Already, however, $9 is being seen as a ceiling, not a floor.
Microsoft’s recent deal with Nokia removed one of Blackberry’s most likely suitors.
As hedge fund manager John Hempton noted at the time: “The music has stopped. Blackberry is standing up. There are no chairs left.”
Unwritten rules in a fool’s game
One might have thought Blackberry’s descent from $230 in 2007 all the way down to single digits might have sparked analyst revulsion. Not so, commentator Mark Hulbert noted, most had a “hold” rating on the stock.
The “hold” phenomenon is not confined to Blackberry, with Hulbert noting 93 per cent of analyst ratings are “hold” or higher. Just 2 per cent attract a “strong sell” rating, with 4 per cent getting a “weak hold”. In 2011, Business Insider chief Henry Blodget, the infamous analyst banned from the industry in 2003, gave many good reasons why “sell” ratings will always be a rarity. (Essentially, they can be risky, controversial and antagonise companies.) “The more polite way to tell people to sell,” he said, “is to say ‘hold’.” Institutional investors have long known this. A study analysing data from 1994 to 2001 found they typically offload stocks downgraded to “hold”. Not so small investors, who reacted to “buy” and “sell” ratings but not “hold”.
Trading on analyst recommendations is a fool’s game but if you’re going to do it, it’s best to know the unwritten rules.
Travel agent’s internet stocks are flying
Online travel agent Priceline recently became the first S&P stock to breach $1,000 (€738). Up 60 per cent this year, Priceline, like Facebook and LinkedIn, is one of many internet stocks to be flying high these days.
The Nasdaq Internet index is up almost 50 per cent this year and almost five-fold since March 2009. That compares to about 200 per cent for the Nasdaq 100 and 150 per cent for the S&P 500.
Little wonder Twitter is looking to make its stock- market debut soon. When the ducks quack, as they say, feed them.
Can’t bet against the crowd?
Merrill Lynch’s latest monthly survey of global fund managers found a net 36 per cent of respondents believe emerging markets are the most undervalued of all the regions, the strongest such reading in nine years. And yet, few want to touch them – a net 18 per cent are underweight emerging markets, and a net 21 per cent say it is the region they most want to underweight.
This seeming contradiction crops up frequently in the surveys. In June 2012, at the peak of the European debt crisis, valuations hit levels unseen in decades. Fund managers recognised this, a net 45 per cent saying Europe was the most undervalued region (a record reading). So how did they respond? By holding the third-highest cash levels on record.
Similarly, in March 2009, at the bottom of the global bear market, a net 42 per cent believed equities to be undervalued. And yet, a net 41 per cent were underweight equities. The survey is seen as a contrarian goldmine. All of which indicates it’s not that fund managers can’t see value – rather, they can’t, or don’t want to, bet against the crowd.
How billions are waisted on consultants
Billions of dollars are wasted every year on bad advice from investment consultants, an Oxford study says. Analysing 20 consultancies that made up more than 90 per cent of the market, it found that recommended US equity funds underperformed non-recommended funds by 1.1 per cent annually between 1999 and 2011.
Despite this, 82 per cent of public pension plan providers paid for their advice. Globally, consultants advise on $25 trillion (€18.5 trillion) of assets.
Why? Investors may want a “hand-holding service”, a “shield” to deflect criticism, or because they have no idea consultant advice is usually worthless. Consultants tend not to disclose past recommendations but regulators should require they do so. Otherwise, plan sponsors “are making appointments partly blind”.