Invest in Nokia (NOK)

 

 

Nokia (NOK) is in the midst of a great turnaround story. They are working to gain back market share in the mobile business and to return to positive cash flow. If Nokia continues to innovate, make strategic business decisions, and execute their plans well like they have done in the past six months, they will certainly have the turnaround story become a success.

Nokia has recently launched their latest flagship phone, the Nokia Lumia 920, which has earned many honors in the mobile technology world and has bested Apple’s iPhone 5 and Samsung Galaxy S3 in many  categories.


Fundamentals

Stock Price: $4.00 (close as of Feb 1, 2013)
Market Cap: 14.98B
EPS -1.14
P/E: – (negative EPS)
Forward P/E: 22.22
Price/Sales: 0.37
Price/Book: 1.39

Data from Google Finance/ Yahoo Finance

 

Mobile Business

Nokia has made great progress in the Asian market.

Nokia has inked a deal with China Mobile, which has the world’s largest subscriber base of approximately 700 million users. If Nokia can attain 10% of their subscribers, that would account for 70 million phones alone.

Nokia is rated the most trusted band phone in India. India is another huge market for Nokia, with potential to gain and strengthen their global market share.

Mapping Business (NAVTEQ)

Nokia has a world-class mapping system; their only real competitor is Google Maps. In recent news, Nokia beat Google by winning a deal with Toyota, the world’s largest car manufacturer.
Patents
NOK has over 10,000 patents in its patent portfolio, and many of them are used by other major companies, including mobile phone companies like Apple. Nokia’s patent portfolio commands over $700 millions in royalty payments per year, including royalties from every iPhone (AAPL) sale and now every Blackberry (RIMM) sale.

Institutional Holdings

Goldman Sachs (GS) and Morgan Stanley (MS) have accumulation a sizable amount of shares in their portfolios, despite that both companies had issued a SELL rating on Nokia last year. Institutional holdings are publicly reported, and you can see that GS has bought 55M shares in Q3 of last year,  an increase of 90%, for a total holding of 116M shares. MS has bought 28M shares, an increase of 638%, for a total of 32M shares. It’s interesting to see that GS and MS have a very huge interest in Nokia.

 

Dividend Cut

Nokia recently decided to stop their dividend payout for the first time in 143 years. I think it is a smart move to eliminate the dividend and use the $1 Billion that they save to help grow their business.

Stock Buyback

Nokia is planning to repurchase up to $370 Million of shares. It is always a wise move to reduce the number of floating shares and thereby increasing the earnings of each share.

 

Stock Price

NOK has run up nicely after hitting a 52-week low price of $1.63 back in July 2012 and have gained a total of 68% since then. The stock chart currently shows an uptrend. I think the stock price will break $5 this year.  If NOK can hold at at least $5, then the stock will appear on the radars of the mutual fund managers. Once there is institutional accumulation, the stock price should easily see $8.

My target price for 2013 is a very conservative $5, even though I think NOK should be able to hit $8 this year. My target price for 2014 is $10.

 

Disclaimer: I am long Nokia because I believe in the company’s management, quality of its products and its commitment to innovation.

Data Source:
Google Finance
Yahoo Finance

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