First, Nokia (NYSE:NOK) hired a new chief executive officer in March after announcing the current CEO, Rajeev Suri, would step down after six years in the top job. On June 11, Nokia hired a new chief financial officer to replace current CFO Kristian Pullola, who will leave at the end of the year after 21 years at the company. While the changing of the guard might inspire some short-term gains in Nokia stock, it will need to do a lot more to get to $6 and beyond.
Here’s why.
Shuffling the Deck Chairs
The last time I wrote about Nokia was in mid-March, just after it announced that Suri would be stepping down as chief executive. It was now up to Pekka Lundmark “to deliver on the company’s plans for 5G.”
Suri had been at the company for 25 years. It was the right time for him to move on. As for Lundmark, all I know is that he was the CEO of Finnish clean energy company Fortum (OTCMKTS:FOJCY). Time will tell if he’s got the chops to run one of Finland’s most iconic companies.
More often than not, when a CEO leaves, there are sweeping changes in the c-suite as the new person seeks to put his or her stamp on a company’s operations. Naturally, Lundmark had a hand in the hiring of his CFO.
“Marco has deep financial and leadership experience, a sharp focus on driving operational excellence, and a demonstrated record of success,” Lundmark stated June 11, who takes over on Sep. 1. “He also brings an extensive background in business-to-business and technology companies. I am looking forward to working closely with him and am fully confident he will be a terrific member of the Nokia team.”
The new CFO is March Wirén, who most recently was the president of Wartsila’s (OTCMKTS:WRTBF) energy business. Not surprisingly, Lundmark and Wiren come from the energy industry. They’re likely familiar with each other.
“Nokia is one of the world’s iconic global companies, and I am excited to be joining as the 5G era gets fully underway,” Wirén said in his announcement. “I have deep respect for the company and its culture, and look forward to helping create shareholder value in the years to come.”
I don’t know why corporations bother rolling out these canned comments. They do the opposite of getting investors excited about the future.
As is often the case with CEOs, CFOs are often overhyped in their ability to bring positive change to organizations. The addition of two people isn’t going to be enough to push Nokia to greater success. It will only happen with the commitment of its entire global workforce.
While Nokia stock has managed to move from $2.50 to over $4 in the three months since the mid-March correction, it’s going to require real 5G wins to keep its stock moving higher.
5G and a $6 Nokia Stock
I read something by A Wealth Of Common Sense blogger, Ben Carlson, the other day that could have as much to do with Nokia’s 60% gain over the past three months. Carlson was comparing the performance of S&P 500 stocks from Jan. 1 to March 20 to the performance of those same stocks year-to-date through June 9.
Carlson said only 4% of S&P 500 stocks were positive through March 20. By June 9, that number had increased to 36%.
“It is worth noting that many of the stocks that have seen ginormous rallies over the past few weeks and months are still getting crushed year-to-date,” Carlson stated.
“The cruise stocks — Carnival, Royal Caribbean and Norwegian — are all still down more than 50% on the year. There are still plenty of energy and retail names on the list of worst performers too.”
On Dec. 31, 2019, Nokia closed trading at $3.71; it closed March 20 at $2.66, and at $4.42 on June 9. It was actually up 19% YTD through June 9 despite the March correction.
At the crossroads, I wonder if it can keep going to $6 and beyond. My InvestorPlace colleague, Chris Markoch, doesn’t seem to think so. He’s got several reasons why the momentum will come to an end. I believe there are three that successfully drive home his argument.
First, Nokia was a value play in a sea of relatively expensive stocks. It was oversold. Now that it’s gone on a run, the opposite is true. With a relative strength indicator that recently hit 78, it’s still relatively overbought despite its recent correction.
The second reason has to do with 5G.
“The company expects demand to decline in future quarters. This touches on the contradiction of 5G. As large of an opportunity as the technology represents, many companies are going to be in recovery mode,” Markoch wrote June 9.
The company lowered its adjusted earnings per share for its upcoming quarter by 3 cents to 20 cents at the lower end of its guidance and by two pennies to 34 cents at the high end to reflect the reality of the novel coronavirus. It’s not a disaster by any means but indicative of the difficulties that lie ahead for all companies coping with Covid-19.
Lastly, he points out that Nokia without a dividend is far less attractive to a wide swath of investors. I said as much last November when it paused its dividend. Until it restarts the dividend, or its 5G business jumps off the charts, Nokia stock is dead money.
Come the fall, perhaps that will change. That said, I don’t see $6 in the cards in 2020.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
