For all but a select few industries, the novel coronavirus represented the blackest of black swan events. This was especially the case for telecommunications equipment providers like Nokia (NYSE:NOK) and regional rival Ericsson (NASDAQ:ERIC). After trudging through some uncertain waters in 2019 due to the U.S.-China trade war, along with concerns about a global recession, 2020 offered hope. For instance, Nokia stock found itself up double-digit percentage points in early February.
However, the Covid-19 pandemic immediately crushed that optimism. Although NOK has been through multiple health-related crises before – most notably SARS and the 2009 H1N1 outbreak – the coronavirus took such calamities to another dimension.
To stem the tide against this rapidly proliferating virus, multiple countries, including the U.S., instituted broad lockdowns.
This was particularly harmful for Nokia stock as it meant that the underlying company would see progress in its 5G business come to a halt. After years of blunders and bad decisions, NOK was not in a position to treat setbacks as mundane affairs.
But after diving to ridiculous lows around mid-March, Nokia stock has put on a remarkable recovery. Basically, shares are right back to where they were in the first half of February. Not only that, there’s a case that NOK could continue moving higher.
In mid-May, President Donald Trump issued a new rule that will prevent Huawei and its suppliers “from using American technology and software,” according to the New York Times. Clearly, this move was aimed directly at China, for which Trump has consistently expressed disdain, first for China’s intellectual property theft of U.S. assets and recently, for failing to contain the coronavirus.
Economically, this backdrop sends a chill, unless you’re holding Nokia stock.
A Cynical Opportunity for Nokia Stock
Before the pandemic, one of the biggest concerns that the U.S. had was China’s growing global influence, particularly in the technology realm. Further, Trump was undoubtedly irked that China used American semiconductor components to essentially undermine U.S. tech dominance.
As a new strategy to outsmart the Chinese, the Trump administration called on American tech firms to develop a uniform standard for 5G. By allowing 5G software developers to run code on any hardware, this uniformity helps eliminate the need for Huawei equipment, which is a leader in the 5G hardware space.
Not only that, the measure found support from companies such as Microsoft (NASDAQ:MSFT), Dell Technologies (NYSE:DELL) and AT&T (NYSE:T). According to White House economic adviser Larry Kudlow:
“The big-picture concept is to have all of the U.S. 5G architecture and infrastructure done by American firms, principally. That also could include Nokia and Ericsson because they have big U.S. presences.”
Usually, when your top competitor suffers a setback, that’s a net positive for you. And when these politically motivated developments were occurring earlier this year, Nokia stock took off. However, assuming that the coronavirus pandemic never happened, this narrative for NOK would have faced stiff challenges.
Primarily, as the Wall Street Journal noted, Huawei “has won fans globally — including small rural telecom carriers in the U.S. — for the quality of its equipment and technical support.” Significantly, this sentiment extended to the U.K., which allowed Huawei to build part of its 5G infrastructure, to American objections.
Of course, the coronavirus did happen, which completely changes the story for Nokia stock. Frankly, the world hates China. For example, Australia is rethinking its economic dependency on China after the Asian country balked against Australia’s request for an independent inquiry into the novel coronavirus’ origins.
More Pain, More Gain for NOK
Based on what I see politically, I don’t think the Trump administration will let up on China. As you know, our country is wrestling with nationwide protests calling for social equality and justice. Amid this backdrop is an economic catastrophe where a sadly ridiculous number of Americans have filed for unemployment benefits.
Judging from his words and actions, I’m 100% sure that Trump blames China for ruining his chances for reelection. Realistically, the only hope for the president is to target a foreign “other.” From America’s perspective, you couldn’t get more foreign than China.
To put it another way, we’re on a determined path to hold China accountable. That’s bad news for Huawei and excellent news for Nokia.
Still, you don’t want to dive into Nokia stock blindly. Let’s not forget that China can just as easily retaliate against American businesses – and I’m not just talking about tech firms. Besides, NOK is technically overheated.
But on a significant dip, I believe risk-tolerant investors should take a look at the telecom equipment provider. On a fundamental basis, the narrative has changed dramatically and favorably.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he is long AT&T stock.
