Not all stocks are created equal. Long-term shareholders of Nokia (NYSE:NOK) can attest to that, at the expense of their investment. Looking forward, that same inequity has an increasingly strong chance of working in favor of today’s investors. Let’s look at what’s happening in Nokia stock and what an appropriate risk-adjusted position might look like.
The stock market hit a far-reaching bump in the road this past week with the novel coronavirus. This helped push the S&P 500 into profit-taking mode, slumping more than 2.75% by the time all was said and done. It’s not over, either.
There are rising and even record-breaking numbers of Covid-19 cases across the country as U.S. businesses re-open their doors to varying degrees. The new wave of infections has already forced some cities and states to take decisive steps backwards.
What does that have to do with Nokia stock? Not a lot judging by last week’s defiant gain of 0.23%. Then again, in a two-sided market whose minimum spread is a penny, the stock’s gain of one cent to $4.34 is hardly worth writing home about. Still, Nokia investors may have a couple very good reasons to be optimistic going forward.
Nokia Stock and 5G
The other reality facing Nokia investors, which stands to work its way into the stock’s share price by a much less debatable pretty penny, is the company’s growing presence within a global roll-out of the 5G network. Irrespective of today’s Covid-related socioeconomic challenges down the road, Nokia’s 5G business plans do appear to be properly immunized.
So, what’s the deal? 5G has received its share of hype, but for good reasons not to be downplayed or worse yet, dismissed. Especially as it relates to Nokia.
The quantum jump in speed and reduction in latency offered by 5G will unlock a transformative evolution in machine learning and AI. Consequently, new discoveries in technology, finance and economics, science, and medicine will be revealed. For consumers of course, 5G also means the ability to take your mobile internet to the next level. For those that can afford it, living ever more so closely like George Jetson’s family will become a reality.
As InvestorPlace’s Luke Lango notes, Nokia’s networking infrastructure, multi-vertical partnerships and contracts with tech’s largest and most influential companies, from Intel (NASDAQ:INTC), Europe’s Vodafone (NASDAQ:VOD), to Asia’s China Mobile (NYSE:CHL) or Tencent (OTCMKTS:TCEHY) and many others, are making this revolution possible right now.
Moreover, those advances are barely at the first stage of becoming a reality. And that should result in a multi-year, secular tailwind and growth opportunity for Nokia and its investors.
Nokia Stock Monthly Price Chart
Source: Charts by TradingView
After running higher off its March low, the Nokia price chart is still in need of momentum to get past potential stock-related headwinds of the last couple years. Optimistically and without being too hopeful, June is going a long ways towards that end.
With the calendar month nearly finished, the past few weeks have been spent consolidating Nokia’s gains of about 85% from its absolute bottom at $2.34. The technical interpretation is that this is good news for higher share prices that are well-supported by Nokia’s longer-term chart.
The illustrated monthly view of Nokia shows the bulk of the rally’s gains fell inside its deep March bottoming hammer-style candlestick. In fact, price confirmation of a low only happened as the stock traded through $3.96 in May. That’s just 9% beneath the current share price. Given June’s price consolidation as well as Nokia’s bullishly trending stochastics stationed in neutral territory, there are decent reasons to have shares on the radar now.
Bears reading Nokia’s price chart might, and rightfully so, be quick to note the stock remains in a downtrend. But until now, the choppy lockstep pattern lower also had more of Nokia’s disappointing cell phone legacy to weigh on shares than today’s promising 5G catalyst. As much, the current downtrend’s lower-low formed in March could go on to become a very important and powerful higher-low bottoming pattern that’s eight years in-the-making.
Bottom-line, all trends eventually come to an end. And with today’s Nokia shares also grinding to a halt this past month just below the 50% retracement level from its 2012 low to 2014 peak, there’s an additional reason to see the NOK stock glass as being only half full.
My recommendation would be to buy into Nokia on a breakout above the June high of $4.54. However, my advice for positioning is to purchase an intermediate-dated bull call spread.
As good as Nokia’s story sounds, shares are also still a turnaround story in progress, and one not paying shareholders for their time via an income stream. One favored play which looks like a solid use of leverage and safety is the Weekly’s 15’ January $4 / $6 call spread.
Investment accounts under Christopher Tyler’s management does not own any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.