Nokia Corp (ADR) (NYSE:NOK) has been a horrible investment in 2016. NOK stock is down 20%, and the company hasn’t shown a profit all year. Asset levels are falling, cash flow is negative, and the share count is up.
Yet some analysts are pounding the table for the stock. More than half have it on their buy lists and some, like Brian Nichols of BNL Finance, are downright enthusiastic. He calls this a must-have stock for 2017.
What do these analysts see that the market does not?
It can’t be the new Nokia phone. That will be a rather ordinary smartphone running Alphabet Inc’s (NASDAQ:GOOGL, NASDAQ:GOOG) Android operating system, made by a unit of Hon Hai Precision Industry Co. Ltd. (OTCMKTS:HNHPF) — the Apple Inc. (NASDAQ:AAPL) builders known as Foxconn — with the Nokia brand licensed to a third party. Even if it’s a hit it’s not going to generate a lot of cash, or profit, for Nokia.
Why do you need to buy Nokia now?
A New Nokia
First, this is not the same Nokia you remember. Today’s Nokia is a major manufacturer of gear for public networks, following its purchase of Alcatel-Lucent, which closed in January. Almost none of its current employees were working for the company in 2012.
After the disasters of the last decade, where it lost the mobile markets it once controlled, Nokia combined its equipment unit with that of Siemens, got out of devices entirely, and sold its HERE mapping unit before pulling off the $17.6 billion combination with Alcatel-Lucent, announced in April, 2015.
All this means that the three chief switch brands of the 1990s are now under one roof, along with all those relationships with the world’s wireless and wireline carriers.
Nokia also has some great stuff to sell through that channel.
Start with 5G wireless networking gear, a speed that will let people combine wireless and wireline contracts. Then add new fiber technology that lets wired carriers move data at 1,000 Gigabits/second, 1,000 times faster than the speeds advertised by Google Fiber and 250,000 times faster than the 4 Mbps FCC broadband standard.
Bet on Rising Network Demand With NOK Stock
What it means is that buying Nokia today is a bet on demand for wireless and wireline services increasing dramatically over the next several years.
That would seem to be a good bet.
Carriers are already advertising TV services for phones, and combining with TV networks to deliver them, while throttling customer speeds because they can’t fully deliver on the promise. Augmented reality games like Pokemon GO are increasing demand for bandwidth.
Add the Internet of Things and virtual reality games like those already being advertised by Samsung Electronic (OTCMKTS:SSNLF) for its Galaxy 7 phones and you have a lot of new demand for faster networks.
The only question is whether carriers will budget the money to deliver on their promises.
Equipment Always Choppy
Right now, the market cap for Nokia is roughly twice its annual revenue, and revenues in this space are notoriously choppy.
The completion of LTE networks caused carriers to drop their orders for Nokia gear earlier this year and we are only now at the front end of demand for 5G and super-fast broadband demand.
The risk in Nokia stock today is that network operators who just finished spending big on LTE may be reluctant to raise the capital for 5G until demand is proven. You may have to wait for the payoff, which is why the stock still trades under $5 per share.
If you get into Nokia now, you’re catching the next wave of network spending at its bottom, and can ride that wave to profit. That is the bull case, and while that might take some time to prove out, it’s a good bet carriers will spend again in the next three to five years.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in GOOGL and AAPL.