Nokia (NYSE:NOK) stock is certainly a cautionary tale of what can go horribly wrong in the tech world. More than a decade ago, the company was a leader in the mobile market, with a $100-plus billion market capitalization. But of course, with the emergence of Apple’s (NASDAQ:AAPL) iPhone and Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) Android operating system, NOK stock would soon fall to pieces. The company just was unable to innovate and adapt.
Yet NOK has not given up. During the past few years, the company has undergone a major transformation. It has outsourced its phone business and has invested heavily in the network equipment business, which has involved the acquisition of Alcatel-Lucent.
Despite all this, NOK stock has still slumbered. For the past three years, the return is a dismal 4% loss.
But I think it’s too soon to give up on Nokia stock. After all, Apple showed – in the 1990s – that a beaten-up tech company can return to glory. We’ve also seen this with other operators like Microsoft (NASDAQ:MSFT) and Adobe (NASDAQ:ADBE).
And I think the same can be the case with NOK stock. Keep in mind that the company has been engaged in a major cost cutting program, which will help bolster the bottom line.
In fact, just look at the latest quarterly report for Nokia. The company posted earnings per share of 6 cents, while the Street was looking for 3 cents. There was also a 7% increase in revenues to $6.34 billion on a year-over-year basis. Actually, during the past five quarters, the company has been able to beat or meet expectations.
The 5G Catalyst
But of course, the big-time driver for NOK is the 5G megatrend. Carriers like Verizon (NYSE:VZ) and AT&T (NYSE:T) are gearing up for this by investing heavily in their networks.
For the most part, 5G technology is likely to be a game changer for the smartphone business. Note that there will be speeds that are hundreds of times faster than existing networks. This translates to standout performance for video and other data-intensive applications.
Yet 5G will likely be more than a boon for consumer mobile devices. The technology will definitely be critical for large markets like the Internet of Things (IoT).
Here’s what Nokia CEO Rajeev Suri had to say about 5G on the earnings call: “We now have 45 commercial 5G deals and are operational in nine live 5G networks. We also started to recognize 5G revenue in the second quarter including in North America and expect that recognition to continue to build in the second half of the year.”
Now there is tough competition, such as from Ericsson (NASDAQ:ERIC), Cisco (NASDAQ:CSCO) and Huawei. But then again, the market is massive. And besides, Huawei is under much pressure from the U.S., making it tough to get headway in markets outside China.
Nokia also has the advantage of a comprehensive set of offerings, including technologies for mobile, fixed networks, security and routing. This means that the company should be nicely positioned to get a sizeable share of the market opportunity.
Bottom Line on NOK Stock
Investing in NOK stock right now still seems dicey. Let’s face it, the company has a spotty track record.
But I think it would be a mistake to give up on it. The 5G revolution is real and NOK has the right technology to benefit. The low-cost structure will also provide a nice amount of leverage. And in the meantime, the stock has an attractive forward dividend yield of 4.45%.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
