BlackBerry's Approaching Moment of Truth

 | Jun 26, 2013 | 1:40 PM EDT
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This Friday morning, June 28, BlackBerry (BBRY) will release its quarterly earnings.

The company is at a critical moment in its evolution. A year from now, we will likely look back on this report and say, "That was the beginning of a big turnaround" or "That was the beginning of the end."

It seems destined to be a binary result like that.

So either way, there's a good chance that the stock will move a lot in both directions.

However, there's another big factor at work here.

Most investors and hedge funds are likely sitting on bigger losses than they had expected a week ago, before Fed Chairman Ben Bernanke's comments and press conference. So you have funds licking their wounds. And now it's the end of the month and the end of the quarter. Those funds are probably upset that their performance is going to be a lot lower than it was a week ago.

The question likely being bandied about right now in many internal hedge-fund meetings is, how can we juice our returns in the remaining days of the quarter?

A standard go-to in these situations is, are there going to be any earnings reports in the next few days which we could play? If so, BlackBerry would get a strong look.

However, BlackBerry is particularly attractive for many hedge funds right now because of its high short interest. It's still at 35% of the float at the moment.

I've commented here before on how BlackBerry is really the only highly shorted stock this year that hasn't had a tremendous run on a big short squeeze. Friday's report could finally force a short-covering on some good news.

The Street is very split on this stock. However, earnings estimates have been creeping up in the past few days, even though most of the price targets haven't changed for the stock.

What's also interesting is that many of the more bearish stock analysts have been saying in their notes, "Well, yes, BlackBerry is probably going to have a good quarter, but it's only because they're going to stuff the channel, so the next quarter will see things peter out." All these notes are also quick to point out that the high short interest might cause the shares to spike up, even though all these analysts are keeping their price targets the same.

They're likely trying to have their cake and eat it too.

But the performance-hungry hedge funds might think that trying to ride a potential BlackBerry short squeeze could be their best shot at making up some of their lost ground in the past week. It could be too tempting to pass up.

Even though there haven't been many high-profile longs in BlackBerry, the percentage of hedge-fund shareholders with long positions in the name has been steadily increasing, according to Bloomberg. Back in February 2011, hedge funds owned less than 5% of BlackBerry. Today, it's up to 15%. Big hedge funds in the stock include Viking Global, Coatue, and JAT Capital.

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volatility is quite low here, and we could see some downsides here in the short term. ...



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