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Nokia Stock Is a Short-Term Trade And That’s About It

When I worked at Sony (NYSE:SNE), a colleague who came over from Nokia (NYSE:NOK) shared a running joke at his former employer: Sony who? I declined to ask the obvious question, but it appears that karma never forgets or forgives. Just look at the chart for NOK stock to understand what I’m talking about.

Nokia Stock Is a Short-Term Trade And That’s About It

Source: Shutterstock

After falling to dramatic lows in 2016, the telecom-equipment maker provided a compelling opportunity to extreme contrarians. Generally speaking, they made the right move. But now, the Nokia stock price has given up more than 13% since January’s opening price. Moreover, analysts are questioning whether the company can truly complete its promised turnaround.

Of course, that turnaround comes in the form of the global 5G-network rollout. Although Nokia’s smartphone brand — now “relegated” to a licensing business — is pretty much irrelevant, management transitioned to network services. The idea here is that as a well-recognized international firm, Nokia has an advantage against competitors, thereby boosting NOK stock.

Unfortunately, that narrative lost credibility simply because NOK failed to deliver substantive results. That may have changed, though, with recent news that Ooredoo Qatar inked a deal with the Finish telecom to built out its 5G network. Considering that the Nokia stock price is again rock-bottom levels, this may represent another profitable contrarian opportunity.

I’m going to be blunt: I don’t like NOK stock as a long-term play. But if you’re angling for a quick buck (and you understand the risks), this is a reasonable trade. Technically, the embattled telecom firm’s shares have historically bounced back from spike lows. Moreover, you have fundamental justification in the Ooredoo deal.

But don’t overexpose yourself to Nokia stock, and here’s why:

Turnaround Story for NOK Stock Faces Giant Hurdles

Every organization at one point comes to a critical pivot. It’s in the struggle that we determine who will make it and who won’t. But as NOK stock is concerned, the underlying company has multiple and perhaps insurmountable challenges.

First, let’s talk about their front-face smartphone brand. NOK is now in the licensing game, and smartphones represent a very small portion of their total revenue. Still, they make royalties off Nokia-branded products. And let’s face it: management is in no position to turn down any amount of sales.

The problem here is that along with the rest of Nokia’s businesses, the device segment is declining. Looking at their latest smartphones, all I can think was “oh dear.” They’re bland and unimaginative. At a time when Apple (NASDAQ:AAPL) is incurring questions about their hardware, this is the time to strike. Unfortunately, it’s a missed opportunity for Nokia stock.

But the overriding challenge comes from the networks side. It’s 89% of Nokia’s sales, so it’s do or die. The good news, as we saw with the Ooredoo deal, is that 5G is a technology of tomorrow. However, as our own Dana Blankenhorn explained, competition is fierce.

NOK stock jumped on 5G’s groundbreaking potential. But that same bullish narrative applies to other companies that don’t share Nokia’s problems.

Also, the all-important numbers don’t provide any confidence toward the turnaround story. In the first quarter of 2019, Nokia generated only $5.72 billion in top-line sales. That’s a 5.6% drop year-over-year. Not only that, it’s almost dead-even with Q1 2017’s sales haul. Essentially, this means that NOK has gone nowhere since becoming a “new” company.

Since there’s nothing particularly distinctive about the company’s approach to 5G, I’m not ready to risk jumping on Nokia stock.

Dividend Is Nice, But Not Attractive Enough

That said, NOK stock isn’t without its strong points. The one standout for the telecom is its lofty dividend rate. At 4.5%, it will draw some eyeballs.

I’m not against taking risky bets based partially on their dividend payout. After all, I own some shares of AT&T (NYSE:T). For me, though, the difference comes down to credibility. I believe in AT&T’s longer-term vision, and it has the necessary large-scale support to meet it. With Nokia stock, I mostly see a commoditized organization with shaky fundamentals.

But as I said earlier, NOK can make some moves from here. If it does, just take your profits and run. After years of turnaround efforts, it’s still not getting the job done.

As of this writing, Josh Enomoto is long Sony and AT&T shares.

Article printed from InvestorPlace Media, https://investorplace.com/2019/05/nok-stock-short-term-trade-and-thats-it/.

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