Perception and Reality at Blackberry

 | Jan 09, 2014 | 3:00 PM EST  | Comments
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jcp

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When all is said and done, prevailing sentiment is the most powerful thing that drives market moves in the short term. For example, J.C. Penney (JCP) announced on Monday it was "pleased" with the holiday season and reaffirmed guidance for improved December sales and the stock got trashed.

Macy's (M), on the other hand, narrowed second half guidance toward the bottom of the previously-announced range (2.8 to2.9% vs. 2.5 to 4%), closed five stores and cut 2,500 jobs. That stock soared.

If this seems illogical to you, I can assure you that you are not alone. The simple fact is that whatever JCP says or does now, traders will put a negative spin on it, while M exists in the happy world at the opposite end of that spectrum.

In JCP's case there could be good reason, as the damage done to the brand and the balance sheet during the Ron Johnson was significant and long lasting. But the reaction still seems unfair in a basic way. In markets, however, as so often in life, perception is reality and nobody ever told me things would be fair.

There is another example of perception domination in the last couple of days -- Blackberry (BBRY). Over the last few days Blackberry CEO John Chen has been busy at CES, saying a lot about future plans. The stock has reacted positively and is up over 13% since last week's close.

When you look at what has actually been said, however, it would seem that spin is playing a part here. This morning, for example, I saw a headline that said "Blackberry Commits to Keyboards!" Maybe I'm just a cynic, but an "Onion" type headline immediately went through my mind, something like "Whip Manufacturer Commits to Buggy Whips!"

This commitment is, however, being generally touted as a positive thing. Similarly, AT&T 's (T) comments about sticking with Blackberry sounded to me like a sports team owner's vote of confidence in a coach just before he is fired. But that also drew a generally positive reaction.

The strange thing is that, with Thorsten Heins leaving and Chen taking over, conventional wisdom regarding BBRY has changed. Until recently, most commentaries that I read agreed that BBRY needed to abandon device making all together or, at the very least, get with the program and abandon the keyboard. Now, it seems, everybody is concerned about the small number of people committed to keyboards and catering to them is seen as a good thing.

Let me tell you something. Until recently, I was one of those people who stuck with Blackberry and had convinced myself that I, too, loved the keyboard. Eventually, however, I came to realize that what I liked was just familiarity with my phone. Now that I have made the switch, I cannot imagine ever going back. Assuming that I am not a total freak, that small rump of keyboard loyalists will continue to shrink.

Still, conventional wisdom says that BBRY was undervalued and that it will be one of the hot stocks to own in 2014. I am just not quite sure how you undervalue a company that has seen a consistent decline in profits become a persistent increase in losses.

Overvaluing it in the face of hype, on the other hand, is easy. All one has to do is convince oneself that there is still a strong demand for buggy whips (sorry, keyboards) and the commitment to that technology looks smart and BBRY looks like a buy. There is no doubt, on that basis, that some more appreciation is possible. But to me every move up just makes me more tempted to short it.

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