It’s been a difficult road for Finnish telecom firm Nokia (NYSE:NOK). After the company nosedived back in 2012, NOK investors have been on a roller-coaster ride that has taken the share price from over $8 in 2014 to a hair above $4 in late 2016. Now, with the share price at $5 and a huge opportunity with the growth in 5G on the horizon, investors are wondering whether the turnaround NOK stock has been promising will finally materialize.
5G Potential
The big reason Nokia stock should be on your radar right now is the firm’s potential to come out a winner in the 5G battle. The firm has been signing commercial 5G contracts at an impressive rate — NOK has inked deals with 42 companies from varying industries over the past two months, reportedly putting the firm ahead of competitors like Huawei and Ericsson.
Part of the reason for that is Nokia’s existing relationship with companies around the world, and the promise of a smooth transition between 4G and 5G. The firm was able to sign up big-name blue chips like T-Mobile (NASDAQ:TMUS), AT&T (NYSE:T) and Telia Company, which speaks volumes about the NOK’s clout in the industry.
Playing on Tension
The second big reason to keep Nokia stock on your watchlist is the ongoing tension between the US and China. Not only was Nokia plodding along nicely with it’s 5G contracts on its own, but the United States’ decision to turn its back on Chinese competitor Huawei is giving Nokia some pretty serious tailwinds. Not only has that helped NOK in the US, it’s also caused foreign firms who side with the US’ stance on China to consider Nokia contracts.
Amid worries about its ties to the Chinese government, Huawei is under scrutiny around the globe and that’s helped Nokia get a foot in the door where it might not have otherwise. In Canada, telecoms like BCE and Telus are considering using Nokia despite having worked with Huawei on their 3G and 4G networks in the past. That’s because the Canadian government is considering a move similar to the US’ by banning Huawei. That helps Nokia in a few ways: first, it gives the firm a chance to build its Rolodex and lay its value proposition out for customers that otherwise may have ignored it because of an existing relationship with Huawei. There’s also an obvious benefit if Huawei does get banned, because it means Nokia may win some of those contracts.
The Risks
Of course, there’s a lot of risk that comes along with NOK stock. The firm’s most recent quarterly results left a lot to be desired and revenue is projected to slide 3% for the full year. Plus there’s the fierce competition that NOK is facing in the 5G arena. The firm’s approach to 5G isn’t fundamentally different to its competitors’ — which leaves a lot of speculation about whether or not Nokia can hold on to its strong position as time goes on. The Huawei ban is a huge part of the reason NOK stock is on anyone’s mind right now, which is troubling because most agree that the US/China trade war won’t last forever.
Plus, there is some question as to whether or not Nokia can execute on its grand plan. We’ve been waiting for a turnaround from NOK to materialize for nearly a decade.
The Reward
With that said, a recovery from where NOK stock is trading right now is all but guaranteed. The question is whether or not that recovery will be short-lived or not. At $5 per share Nokia is trading close to its 52-week low and likely to push higher as Chinese firms like Huawei endure more scrutiny from governments around the world.
The firm’s dividend payment is another incentive to take a risk on Nokia’s longer-term future — with a yield of 4.5% it’s worth a second look.
NOK stock looks likely to deliver gains in some capacity if you’re willing to take a risk. However, before you buy NOK shares, decide if you’re comfortable with the long-term picture. When the stock finally bounces back it could be a good opportunity to take the money and run, but if the firm makes good on its plans to be a 5G leader it might be even more valuable as a long-term play.
As of this writing Laura Hoy was long T.
