Don’t Throw in the Towel on Nokia Stock Just Yet

Nokia is doing better than its stock price would suggest

It’s been a painful six months for the owners of Nokia (NYSE:NOK) stock. Last fall, its shares were worth more than $5 each. Now they trade for just half of that price.

NOK Stock Looks Like an Attractive Gamble, but It's Still a Risky One
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A great deal has gone wrong for the European telecom equipment company. For one, it’s failed to gain traction in the 5G rollout market, as the market has slowed and it’s lost share to rivals like Huawei. Nokia’s former CEO left the company earlier this month. And the coronavirus from China has slowed down telecom spending, while also throwing some cold water on a potential acquisition or an outside investment.

But not all hope is lost for Nokia. It seems like 2020 will be a difficult year for the company. But trading at less than 11 times analysts’ average 2020 earnings estimate, the stock is undeniably cheap, and the company is making a lot of progress, even if it’s not reflected in its stock price yet.

Don’t Expect a Strategic Investment Right Now

In my most recent column on Nokia, I highlighted comments by U.S. Attorney General William Barr, who said that the American government should consider investing in Nokia or Ericcson (NASDAQ:ERIC). His thinking was that such a defensive move would prevent Huawei from dominating the 5G ecosystem. Giving a western tech firm  clear government support would show customers that the company is reliable and well-financed and that it  will be in business for many years to come.

Unfortunately, the odds of any sort of deal occurring in the near-term have plummeted. That’s because Washington now has bigger fish to fry: namely the coronavirus situation. At a time when members of congress are self-quarantining because they’ve been exposed to the coronavirus, you can be sure that more mundane policy issues, such as the 5G rollout, are not on the menu. A government in crisis mode isn’t going to be making an investment in Nokia.

And by the time Washington fully returns to normal, we’ll likely be deep into the 2020 campaign season. Members of the House and Senate will be out on the campaign trail or focused on the presidential campaign. There will be very little interest in holding a controversial vote on providing unorthodox funding to 5G companies ahead of the November elections. In light of all of the above, don’t expect Nokia to receive any government support until at least 2021.

New Leadership

Earlier this month, Nokia’s former CEO, Rajeev Suri, announced that he would be leaving the company. Suri served as CEO of Nokia for more than five years, but it wasn’t an especially prosperous period for Nokia. The company’s recent earnings miss and its dividend suspension really rubbed investors the wrong way.

Nokia has announced that its new CEO will be Pekka Lundmark. Lundmark previously served as the President and CEO of Fortum, a European power utility. With Lundmark’s arrival, expect Nokia to be considering all its strategic options. While a deal with the U.S. or another major government may be off the table due to the virus, don’t be surprised if Lundmark takes major actions to try to get the company back on track.

Making Deals

Despite the terrible market conditions and all the talk of 5G rollout delays, Nokia is still making forward progress. This past week, for example, Nokia signed a deal with Japanese e-commerce giant Rakuten. Under the deal, Nokia will operate a core telecom infrastructure network for Rakuten which will cover all 47 of Japan’s prefectures, while setting the stage for a nationwide 5G rollout.

In addition to that, Nokia has scored other recent contracts. For example, the Irish Aviation Authority hired Nokia to upgrade its legacy air traffic control technology. Nokia is making moves on the technology front as well. Earlier this month, Nokia and Intel (NASDAQ:INTC) announced an improved chip for 5G radio technologies. That followed a similar partnership between Nokia and Marvell (NASDAQ:MRVL) focused on smaller, more power-efficient 5G chips. While Nokia’s share price is floundering, the company is still making concrete efforts to succeed in the 5G market.

The Verdict on NOK Stock

Nokia’s stock has had a truly dismal month. There’s no denying that fact. And sure, the company is going to see a slowdown in the 5G market. Given the coronavirus tragedy, suddenly a lot of other things are higher priorities than the next generation of mobile networks. This is particularly bad timing for Nokia, as it really could have used a big, outside strategic investor.

That said, it’s not time to give up on Nokia yet. Its new management team still has a chance to turn things around. And as the month of March has shown, Nokia is still actively securing both the technology and the customers needed to make 5G an eventual success when investors’ sentiment improves. As another InvestorPlace contributor, Thomas Niel, recently wrote, Nokia stock is currently priced for a near “worst-case scenario“. Thus, it wouldn’t take much for the stock to rebound in the coming days and weeks.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, Ian Bezek owned INTC stock.


Article printed from InvestorPlace Media, https://investorplace.com/2020/03/dont-throw-in-the-towel-on-nok-stock-just-yet/.

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