A turnaround for Nokia Corp (ADR) (NYSE:NOK) could be in the works both off and on the price chart. Yet with fireworks expectations still not sky high for 2017, NOK stock investors should look to the options market for additional income sizzle. Let me explain.
It’s been more than a few dismal years for most Nokia shareholders. NOK stock is off 92% from its all-time-high of $62.50 set back in 2000.
More recently, NOK stock has fell nearly 89% from its decade high set in 2007 of $42.22 to its current $4.75 price tag.
Having said that, NOK stock’s prospects are looking up in more than one way and could spell a turnaround for the Finnish telecom giant.
New licensing agreements with Asian-based HMD Global have the Nokia brand re-entering the mobile phone market after selling its business in 2014 to Microsoft Corporation (NASDAQ:MSFT) to focus on internet, cloud and networking infrastructure.
A mid-market Android-based phone was recently announced for release in China by HMD Global using Nokia’s name, from which Nokia will receive royalties. There’s also buzz of a second, high-end smartphone just around the corner. An announcement could come next month at the Mobile World Congress.
What is known right now is that Nokia’s sales agreements on phones brought to market offer upside potential if the phones do well with consumers. At the same time, there’s much less downside risk for the company, as the cost of manufacturing and distribution lay with HMD Global.
As hinted at, and a year after acquiring Alcatel-Lucent, Nokia’s mobile networking infrastructure business is in position to be a dominant force in the space. Profits have shrunk this past year as the deal was being absorbed, but the combination stands to increase Nokia’s revenues nearly two-fold.
But let’s not kid ourselves either. The business remains tough and a more favorable environment isn’t going to happen overnight for Nokia. Most upgrades to existing 4G networks are finished, there’s increased, low-cost competitors from Asia to be wary of and most markets simply aren’t ready for a rollout to a 5G network.
It’s probably safe to say upside for NOK stock is likely capped near term. But as Nokia’s internal and external challenges ease, the company should be in good position to capitalize on an improving market trend — and NOK stock in tow.
NOK stock also sports a very attractive 6% dividend to its shareholders. The payout isn’t covered by earnings at the moment, which could cause some concern for income investors. Optimistically though, given a raise last year in the aftermath of Nokia’s acquisition, the move points to management’s belief in a turnaround for the merged company.
And lastly, while the NOK stock price chart is unlikely to go anywhere so fast as to recapture the imagination of growth stock traders — it does look supportive for value-oriented investors.
NOK Stock Weekly Chart
Click to Enlarge I’ve already made mention of the wounds bulls in NOK stock have endured since the dot-com bust. The potentially good news is a steep correction over the past two years, as well as from 2000 and 2007, sets the stage for a turnaround in 2017.
As depicted in the provided weekly view of NOK, shares have recently completed a test of a gap fill from 2013 and 62% retracement level stretching from 2012’s multi-decade low to 2014’s high of $8.68. That’s good news technically.
In conjunction with a possible turnaround off the price chart, NOK’s successful testing of support is viewed more favorably than otherwise. At the same time, a buy-write looks well-suited for the occasion.
NOK Stock Bullish Strategy
Reviewing the board, the NOK 24 Feb $5 buy-write is attractive. With NOK stock at $4.74, a mid-market call sale of 13 cents allows for a spread price of $4.61.
For investors seeking income on top of Nokia’s current 6% dividend, this buy-write offers the potential to collect nearly 3% in premium if shares of Nokia remain below $5 over the next six weeks.
Much like the company payout, the premium received from the sale of the call works to lower the cost basis of the position. And if NOK stock rallies 5% and above the $5 strike call, the investor would achieve a max return of 8.7% before commissions.
Looking out and beyond the initial buy-write, if the investor is still confident in NOK stock, rather than allowing assignment, the call could be rolled out and up and the strategy repeated in anticipation of additional income and stock appreciation.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.