One of the big surprises so far this year has got to be Nokia Corp (ADR) (NYSE:NOK). For starters, it hasn’t utterly collapsed yet. The last two years have been dreadful for NOK stock, posting double-digit losses of 10% and 29%. Moreover, it has been a bad decade for the company. Only two years of the seven have ended up in the black. Overall, we’re talking average losses amounting to a pitiful 3.6%.
Yet something must be brewing in Finland. After being the butt of jokes, NOK stock is setting up for a comeback, so it would seem.
Year-to-date, Nokia stock is up more than 9%. This result handily beats out competitors such as Motorola Solutions Inc (NYSE:MSI) and Mitel Networks Corp (NASDAQ:MITL). In addition, for the month so far, NOK stock gained a generous 15%. That actually bests the performance of hard-charging — and barely pronounceable — rival Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC).
But with so much historical negativity surrounding Nokia stock, is it worthwhile for investors to take a gamble? Surprisingly again, there are definitely some positive indicators.
Aggressive Strategies Bolster NOK Stock
Let’s address some general tailwinds, and work our way in. First, as InvestorPlace contributor Lucas Hahn points out, the telecommunications industry is extremely cyclical. He writes that telecoms “tend to overinvest, like in 1999-2001, and then spend little for a few years. Eventually, investment recovers as telcos begin to install the next-generation mobile technology. This cycle repeats itself every few years.” Essentially, this might finally be the time for Nokia stock to shine.
Further evidence of the bullish argument comes from the strategic push by NOK into the lucrative Chinese and Indian markets. The company launched a huge coup d’etat by securing a deal worth $1.5 billion with China Mobile Ltd. (ADR) (NYSE:CHL). Under the terms of the contract, Nokia will provide China Mobile with cloud services and related technologies.
On the Indian front, NOK has strong business relationships with the country’s “big three” of telecom — Bharti Airtel, Vodafone Group Plc (ADR) (NASDAQ:VOD) and Idea Cellular. The partnership is focused on integrating 4G technology. With India’s telecom equipment industry forecasted to grow by double-digits over the next few years, Nokia is well positioned.
Then there’s the whole matter of valuation. Put simply, NOK stock looks like a bargain against key financial metrics. And who can ignore the dividend yield? At nearly 6%, an investment in Nokia stock is a self-mitigating risk, at least on paper.
NOK doesn’t have Enough meat on the Table
So why shouldn’t contrarians take a bite? For all the bullish arguments that are out there, you can just as easily pull up bearish ones. And the fact is that some of the so-called upsides for NOK stock are actually neutral at best.
The dividend yield is a perfect example. A near-6% yield is wonderful, but only if the platform is solid. Is that something you can say about Nokia stock? The short and long answers are both no. We just talked about NOK stock having average losses of roughly 4% average returns this decade. Basically, with the dividends, you’re looking at a net return so to speak of 2%. But that’s assuming that the dividends don’t get cut at some point — a major “if.”
On a related note, the financials are broadly terrible.
Click to Enlarge
Sure, you can cherry-pick a few metrics to support a speculative thesis. But how do you account for a forward price-earnings ratio that is 19% above the industry median?
That’s the result of losing 52% of market value since the beginning of 2010. It’s hard to see NOK stock as an undervalued opportunity rather than what it is — a troubled company with a cheap price tag.
Furthermore, what’s up with the Nokia 3310 handset? I’m not quite seeing what management hopes to gain here. As InvestorPlace contributor Richard Saintvilus rightfully states, “Second acts are seldom granted on Wall Street.” We can go into the details of the competitive risk. I think the real issue is that the company considerably invested in its divestments. A blast to the past is just not what NOK stock needs right now.
Nokia Stock Is Still a Gamble
The markets are a funny thing — investments can explode skyward for no apparent reason. I’ll readily admit that I’ve been caught flat-footed on quite a few of those incidents. And truth be told, I didn’t like Nokia stock, but it jumped double-digits since then.
That’s all good and well. As I’ve remarked previously, NOK stock is a gamble — sometimes you win, sometimes you don’t. But as a long-term pick, I just think there’s better opportunities out there. Their shares are still mired in a severe downtrend that has been in effect for more than two years. Maybe the third time’s the charm. Maybe it isn’t. The bottom line for me is that I don’t like to pour excess money into a 50/50 proposition.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
