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Are BlackBerry Shares Ripe for Picking?

After a long period of consolidation, the stock is showing signs of life.
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Stocks constantly fall in and out of favor. Familiar names are forgotten. Stocks that once generated excitement become boring, and market participants move on to the next hot stock.

Long ago, this market stopped paying attention to BlackBerry (BBRY). The company formerly known as Research in Motion is the manufacturer of the once-ubiquitous BlackBerry smartphone. The company was a juggernaut, with the stock climbing an astronomical 409% in 2003, followed by an impressive 146.7% gain in 2004. By 2011, the company was shipping more than 50 million units annually.

Then Apple (AAPL) introduced the iPhone in 2007 and conquered the smartphone space, relegating a number of popular names to secondary status. The BlackBerry maker went from a market leader to a non-entity. Over the past four quarters, BlackBerry has shipped just over 5 million units.

After a long period of consolidation, however, the stock is once again showing signs of life.

BlackBerry has formed and broken out of a cup-with-handle pattern (semicircles). The breakout occurred on heavy volume (circled), which is classic price action for this pattern. The turnover on Nov. 6 was more than four times higher than normal, and represented the highest volume since Sept. 25.

Source: TradeStation

BlackBerry's MACD (moving average convergence divergence) indicator has been steadily climbing since mid-July (green line), while the stock has moved sideways. When the price and the indicator diverge in this manner, the condition is known as bullish divergence. The assumption is that the price will follow the indicator higher.

The stock has broken decisively above its 50-day moving average (blue). The next key obstacle is its 200-day moving average (red), which lies ahead at $8.71. Beyond that, there is no significant resistance until the stock reaches the $10 area.

Blackberry is in the news thanks to last week's release of Priv, which is the company's first Android-compatible device. The expectations for Blackberry are so low that if Priv should become even a modest success, the stock could get a boost.

By some fundamental measures, this stock is cheap. BlackBerry's enterprise-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio is just 4.47. That low valuation could make the company a potential takeover candidate.

Another factor in BlackBerry's favor is the significant short position that has been accumulated by speculators. The net short position in the stock is equal to nearly 15% of the float. If BlackBerry should begin to rise, shorts could force the stock to climb even higher in a short squeeze.

We're entering a small speculative long position on Blackberry. Since the company has a long history of disappointment, we won't hesitate to cut it loose if circumstances warrant.

At the time of publication, Ponsi was long BBRY, although positions may change at any time.