Why Nokia Corp (NOK) Stock Should Make a BIG Comeback Soon

Nokia Corp (ADR) (NYSE:NOK) announced its fourth-quarter results on Feb. 2 and it exceeded analysts’ expectations. NOK’s operating profits dropped by 27% from the prior-year quarter to 940 million euros, or $1 billion. Analysts polled by Reuters were expecting profits of 788 million euros for Nokia stock.

Why Nokia Corp (NOK) Stock Should Make a BIG Comeback Soon

Given the better-than-expected results, analysts at Morgan Stanley, led by Francois Meunier upgraded Nokia stock to “overweight” from “equal weight,” with a new price target of €5.70. Meunier particularly likes how NOK stock is improving its margins.

In addition to improving margins, I believe Nokia’s return to the smartphone market should also bring optimism.

NOK-Branded Smartphone Coming Back to the Market

The story of Nokia’s last ten years or so has been all about how the smartphone revolution swept the company into oblivion. It eventually sold its phone business to Microsoft Corporation (NASDAQ:MSFT), which eventually sold it to Foxconn and HMD Global in 2016.

Following the transfer of phone assets, HMD Global launched the Nokia 6 smartphone in China in January of this year. According to reports, the smartphone is being bought so quickly that it created an impression that HMD Global was only doing flash sales. HMD Global had to clarify that quick sellouts were the reason it appeared as though it has been a flash sale.

HMD is expected to announce a few more Android-run Nokia phones at the Mobile World Congress in Barcelona later this month. According to reports, HMD will be announcing the Nokia P1 and two Nokia D1C smartphones at the event. We expect the Nokia P1 to be a high-end smartphone, with Nokia stock hinting at using its Weibo Corp (ADR) (NASDAQ:WB) account that an Android-powered Nokia phone with the Snapdragon 835 SoC is in the works.

Other reports claim that the P1 phone will sport a 22.6 megapixel camera and IP68 water and dust resistance. Its pricing would range between $779 and $900, depending on the storage size.

On the other hand, one of the Nokia D1C smartphones will be a mid-range smartphone, sporting the Snapdragon 430 SoC, 3GB RAM and a 16-megapixel rear-facing camera, according to reports. It’s expected to cost around $200. The other D1C smartphone is expected to be of lower spec with 2GB RAM and a 13-megapixel rear-facing camera.

I decided to give a rundown of what’s expected to point out that Nokia stock and its licensees are targeting every segment of the smartphone market with their pipeline. The P1 will compete at the high-end of the market; one of the D1C’s will compete at the mid-level market, while the other D1C will compete for low-end customers.

I believe that this multi-pronged approach increases the chances that NOK stock will be somewhat relevant in the smartphone market — at least one of the consumer segments should find its phones attractive.

I’m particularly optimistic about the low-end D1C smartphone. Various reviews about affordable branded smartphones have carrier-locked iPhone 5s as the most affordable smartphone around. And that price is mostly limited to the U.S. Unlocked versions cost more. So in essence, by the time the low-end Nokia D1C gets to the market, it would be just about the most affordable branded smartphone there is.

Bottom Line on Nokia Stock

With such an offer, I see an opportunity for NOK stock to capture the “unbranded” smartphone market. Higher affordability is a common feature of unbranded smartphones phones. With the low-end D1C, Nokia will be offering customers who have been deterred by high price an opportunity to own branded phones at an affordable price.

The seemingly high demand for Nokia 6, which launched for 1699 Chinese Yuan (roughly $247) in China, is proof that lower-end NOK stock phones stand a chance.

But, it should be noted that the company would only receive royalty payments on every sale of Nokia branded products. In other words, only a portion of the money these phones generate will end up in NOK’s books.

Still, this is high-margin revenue since the licensees bear the production costs and it will go some way to help Nokia stock fix its worsening revenue problem over the long-term.

Overall, while I believe that NOK stock is on the right way to recovery. However, Nokia stock isn’t for the faint-hearted. Although the reward could be great for long-term investors with a high risk-taking quotient.

As of this writing, Craig Adeyanju did not hold a position in any of the aforementioned securities.

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