Despite rallying 20% over the past two months, Nokia (NYSE:NOK) has not done all that well. Even after what many would consider a large rally, Nokia stock is still down more than 20% from the October highs.
What’s going on with this name?
This year should mark a return to growth for Nokia. The company finished its fiscal 2019 year, but has yet to report its fourth-quarter results, scheduled for release on Feb. 6.
If the company delivers in-line earnings and revenue, it will result in full-year profit of 22 cents per share on revenue of $25.98 billion. That’s down 18.5% and 2.4%, respectively. Given those declines, it’s not hard to figure out why Nokia shares have underperformed over the past year.
A Closer Look at Nokia
When the company reported its fourth-quarter results in January 2019, Nokia stock gapped up to the $6.50 area but failed to penetrate this zone. It has since embarked on a drawn-out decline, where downtrend resistance is still in play, (more on that in a bit).
Investors are hoping that 2020 is a return to growth. Analysts expect revenue to advance 1.4%, while earnings are forecast to climb 18.2% in 2020.
While a return to growth looks good on the surface, it does mask some unpleasant realizations. For instance, even though the 2020 earnings growth forecast is impressive, it will still leave Nokia earning just 26 cents per share vs. 27 cents per share in fiscal 2018. Revenue is a similar story, with 2020’s forecast of $26.33 billion coming up short vs. 2018’s results of $26.62 billion.
That is all based on whether Nokia can deliver in-line results. Of course, the company can do better than expected and possibly generate figures better than 2018, or it can do worse and underachieve.
Still, investors may overlook the overall picture as long as Nokia can deliver on growth. That’s clear, as Nokia stock continues to press higher. In other words, its expected return to growth is no secret to Wall Street.
Trading Nokia Stock
On the daily chart above, several important levels and trends are highlighted. The most immediate are short-term uptrend support (blue line) and the $4 level (thin black line).
Near $4 is where the stock’s gap-down occurred, and where Nokia is struggling to advance through. If shares can push higher, they will begin filling the October gap. The first hurdle, aside from fighting an overbought condition, will be to clear the declining 100-day moving average.
In either case — whether $4 or the 100-day moving average acts as resistance — see if a pullback down to uptrend support develops. If so, bulls need to see this level hold, otherwise, a decline to the 50-day moving average may be in store.
Should Nokia eventually fight its way higher, its biggest issue is with the 200-day moving average and longer-term downtrend resistance (purple line). While it may not look long term on the chart above, this downtrend goes back much further than just a few months.
So what’s the bottom line?
Nokia has plenty of work left to do on the long side before bulls are back in dominant control. That said, they are winning the fight right now. On a pullback, bulls will need to see uptrend support hold. Below and the setup becomes iffier.
The Bottom Line
Nokia’s return to growth is promising, and double-digit earnings growth is impressive. But there are a lot of stocks that didn’t go through 2019 with a decline in earnings and revenue. Furthermore, those that did (like Nvidia (NASDAQ:NVDA)) seem like more attractive stocks to buy on a pullback.
As for Nokia’s technical perspective, the stock looks much better than it did a few months ago. But if we’re only talking about the technicals, there’s a lot of stocks that have solid technicals. Stocks like Qualcomm (NASDAQ:QCOM) or Apple (NASDAQ:AAPL) are buy-the-dips candidates for instance.
Is Nokia stock the worst pick in the stock market? Of course not. But it’s not the best. Investors who opt for it should keep an eye on its trend.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AAPL and NVDA.
