Nokia’s 5G Promises Are a Dangerous Trap

Advertisement

For a company in the communications business, Nokia (NYSE:NOK) does a lousy job of communicating with holders of NOK stock.

All Bets Are Off Whether 5G Moves the Needle on Nokia Stock

Source: RistoH / Shutterstock.com

Don’t just take my word for it. The head of Finland’s sovereign wealth fund Solidium, which also is the company’s largest shareholder, recently told Reuters that he gave some “feisty feedback” to the telecom giant after its October profit warning.

Antti Makinen’s anger was understandable given that Nokia slashed its 2019 and 2020 profit outlook, halted its dividend and announced plans to ratchet up spending to maintain its position in the increasingly competitive 5G networks business. To make matters worse, Nokia hasn’t held an investors’ day in years. Those are great opportunities for analysts to learn more about a company. I cannot fathom why the company is failing to provide the most basic of investor relations.

Ignore Nokia’s Temptations

Nokia shares have been on a roll since the start of the year, gaining about 7% — outperforming the broader market as illustrated by the S&P 500. That’s a huge improvement from the almost 40% decline last year. I can’t see any news that justifies the move or that would cause me to change my negative view on NOK stock. Some Wall Street analysts, though, see a bargain.

New Street Research analyst Pierre Ferragu recently raised his rating on Nokia from “neutral” to “buy,” arguing that the Finnish company is poised for a turnaround after four “dreadful” years. A day earlier, Simon Leopold of Raymond James raised his NOK stock rating from “outperform” to “strong buy” for the same reason. He said “We know the winter nights are long in Nokia’s homeland of Finland, but we believe the vendor will get its time in the sun.”

Every time I see pundits proclaim that a stock has gotten too cheap to ignore, I want to scream at the top of my lungs. Of course it can. Stocks prices can go to zero, although I am not claiming that such a fate awaits Nokia. But analysts need to be more critical of the proposed turnaround. Nokia CEO Rajeev Suri has promised better times ahead ever since he got the job in 2014.

The Bottom Line on NOK Stock

Nokia has stumbled in the early days of the 5G revolution. Delays in equipment rollout led Nokia to post a surprise quarterly loss last year. Although Nokia has signed 63 commercial 5G contracts in 2020, FierceWireless notes Ericsson (NASDAQ:ERIC) nailed 78 deals. Consolidation in the U.S. wireless markets is further complicating the picture. Look no further than the recent T-Mobile (NASDAQ:TMUS) merger for proof.

As I noted in December, rivals such as Ericsson and even Huawei are doing better in 5G. That’s one of the reasons why I think that Ericsson is the better deal for investors. Indeed, the pressure is mounting for Nokia to prove that it can revive its stock price when the company issues its next earnings report. Given the issues Ericsson experienced, I fear Nokia may have performed worse.

As of this writing, Jonathan Berr doesn’t own shares of the aforementioned stocks.

Jonathan Berr is an award-winning freelance journalist who has focused on business news since 1997. He’s luckier with his investments than his beloved yet underachieving Philadelphia sports teams.


Article printed from InvestorPlace Media, https://investorplace.com/2020/02/nokias-5g-promises-are-a-dangerous-trap/.

©2024 InvestorPlace Media, LLC