Is Nokia Stock the Best Cheap Play Under $7?

The last time I wrote about Nokia (NYSE:NOK) stock at the end of June, I suggested this: dividend investors should consider buying NOK stock because they’ll be paid handsomely to wait for its turnaround.

Nokia is a solid play with a decent dividend yield

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Since then, Nokia has reported reasonably sound second-quarter 2019 results, sending Nokia stock up almost 7% in the subsequent six weeks. Not a bad performance for a tech company that’s still losing money on an IFRS basis.

Improving Financials Support NOK Stock

In the first six months of 2019, Nokia had an operating loss of 581 million euros on revenue of 10.73 billion euros. In U.S. dollars, that’s approximately $649 million in operating losses and $12 billion in sales.

However, on a non-IFRS basis, Nokia had an operating profit for the first six months of the fiscal year of 391 million euros, or $437.2 million. That’s an operating margin of 3.6%, 200 basis points lower than in the same period a year earlier. Still, this is a positive metric.

In Q2, Nokia saw its sales increase by 7%, or 5% excluding currency. Meanwhile, its operating margin increased by 160 basis points to 7.9%.

For the rest of 2019, Nokia expects a weaker Q3 and a stronger Q4. Statistically, we’re talking operating margins of at least 9%, non-IFRS earnings per share of at least 25 euros or 28 cents, and a small amount of positive free cash flow.

Due to several headwinds, including trade-related challenges, Nokia will focus on generating 700 million euros of cost savings annually. That’s one way to make profits despite the potential sale slowdown in China and elsewhere.

In 2020, it expects better margins, profits, and free cash flow due to its strengthening position within the 5G market. As 5G rolls out on a global basis, Nokia’s revenues and profits should continue to improve.

Nokia’s Dividend Yield

The company has authorized dividend payments of up to 20 euros in fiscal 2019. Management has already paid the first two five-euro dividends. The next two are virtually a sure thing. This means Nokia stock is currently yielding 4.1%.

Of the 47 U.S.-listed equities with a $2 billion-plus market capitalization and a price of $7 or less, NOK stock is the 20th highest of the bunch. That’s a pretty darn good feat.

In my last article about NOK stock, it was trading at or below $5. Therefore, it has gained some ground while still yielding more than 4%.

Since interest rates don’t appear to be moving higher soon, a 4.1% dividend yield is incredibly attractive. Further, a potential equity kicker continues to make Nokia once of the best value plays for stocks trading under $7.

Most of the top large-cap stocks trading under $7 are either financial, basic materials, or technology stocks. Nokia’s balance sheet makes it one of the more attractive value plays of the bunch.

However, as my InvestorPlace colleague Vince Martin recently said, Nokia must execute its game plan better than it has before. One solid quarter, as Martin suggests, does not make for a turnaround.

However, as I said previously, there’s enough meat on Nokia’s bone to make NOK stock an attractive income play. Plus, you have potential capital appreciation over the next 12 to 24 months.

Of course, I could change my tune after Nokia announces its Q3 numbers.

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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