[Editor’s Note: this article was updated on July 27 to correct the Nokia dividend yield.]
Nokia (NYSE:NOK) is implementing new technologies and adding new partners that should improve its 5G offerings. These moves leave Nokia stock better positioned to benefit from the new mobile technology.
Meanwhile, there are signs that Nokia stock is being meaningfully helped by the stay-at-home trend. The company recently entered a new, highly lucrative sector and its incoming CEO can easily take steps to greatly improve the company.
Given all of these points, along with the attractive valuation of Nokia stock, investors should buy the shares at their current levels.
Last month, Nokia announced it would, with the help of chip giant Broadcom (NASDAQ:AVGO), develop new chips that would improve the performance of Nokia’s 5G solution. Specifically, the new chips “will improve both the system performance and energy footprint of 5G networks,” Nokia reported. They will also make Nokia’s 5G equipment smaller and reduce its cost, the company indicated.
Major Move for 5G
According to newelectronics, “the the added performance brought by custom silicon solutions is seen as crucial in realising the capabilities and benefits of 5G and delivering on its requirements.”
Reuters reported that Nokia had previously powered its 5G equipment with a different type of chip called Field Programmable Gate Arrays or FPGAs. These chips can be reprogrammed easily. And, a Nokia executive indicates, can be made quickly at a time when the company was having trouble obtaining chips.
FPGAs, however, “are notoriously expensive” and “take up too much space and power and generate too much heat,” All About Circuits states. The FPGAs lowered Nokia’s profits and negatively impacted its overall guidance, phonearena.com indicated.
The chips that Nokia is developing with Broadcom, called SoCs, are cheaper, smaller and use less power. By the end of 2020, Nokia is looking to incorporate the SOCs into more than 35% of its 5G equipment. By the end of 2022, it aims to power 100% of its 5G equipment with the new chips.
Moreover, in March, Nokia announced it will work with Marvell (NASDAQ:MRVL) to develop processors for the European company’s 5G equipment. Nokia also said it will collaborate with Intel (NASDAQ:INTC) “to deploy Intel’s Atom P5900 processor and its Xeon Scalable processor, which features built-in AI acceleration, into its 5G portfolio,” All About Circuits reported.
Nokia Stock Will Benefit From New Sector
Demand for Nokia’s products has likely increased greatly due to the stay-at-home trend. Specifically, a Seeking Alpha columnist recently wrote that the huge spike of videoconferencing would benefit Nokia stock.
During the novel coronavirus pandemic, carriers in India and Indonesia increased their capacity. Meanwhile, an Indian business news company recently stated that the “Pandemic has accelerated the need for 5G Networks to facilitate faster real time remote healthcare.”
Finally, Northland analyst Tim Savageaux says Nokia is benefiting from “increased traffic demands across the company’s IP/Optical and Fixed Access segments.”
Savageaux believes that Nokia’s recent decision to enter the data center switch market could be positive for the company. Yahoo Finance pointed out that the the switch market is “worth $15 billion.”
Moreover, Apple (NASDAQ:AAPL) decided to buy some of Nokia’s switching products. Customers don’t get much bigger than Apple.
Savageaux has a $6 price target and a “buy” rating on Nokia stock.
Low-Hanging Fruit Awaits New CEO
According to phonearena.com, Nokia “has been accused of lacking steady leadership and during a four-year period it had three different people running the mobile networks division.” And Nokia is generally burdened with “high operating costs,” according to the Seeking Alpha columnist I quoted earlier.
The company’s incoming CEO, Pekka Lundmark, is slated to take the the helm on Aug. 1.
As I noted in a previous discussion of Nokia, Lundmark has a pretty good track record. I think he will be able to provide better, steadier leadership and lower the company’s costs.
The Bottom Line on Nokia Stock
Trading with a low forward price-earnings ratio of just 18 and a 1.4% dividend yield, Nokia’s shares have multiple, positive catalysts and are worth buying at their current levels.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Roku, oil stocks and Snap. You can reach him on StockTwits at @larryramer. As of this writing, Larry Ramer owned shares of Intel.