Nokia (NYSE:NOK) stock is well-positioned in the 5G race that has worldwide political implications. Despite glaring weaknesses, the Finnish telecom company finds itself in position to dominate as 5G networks get built out.
On competitive merits alone, Nokia stands little chance against Swedish rival Ericsson (NASDAQ:ERIC) or Chinese giant Huawei. Yet the company has positioned itself to capitalize on the political environment.
It may dominate.
Numerous factors will shape the 5G land grab as it plays out over the coming decade. The company will remain front and center as this plays out. In these early days of 5G though, Nokia may be a stock to consider simply because prices are low.
That, combined with undercurrents that Huawei simply must not be allowed to win, could make Nokia a massive 5G winner. Nokia may just be worth investor speculation even at this early stage.
Tit-for-Tat Heating Up
Nokia’s fate will be inextricably intertwined with that of Huawei and Ericsson over the coming years. And for all intents and purposes, Nokia is a U.S. brand in the U.S.-China trade war. Whether future mergers make it a U.S. giant remains to be seen. In any case, China knows what Nokia truly represents.
This is important to potential Nokia investors as rhetoric ratchets up. The U.S. and the U.K. banned Huawei from their 5G networks already. The EU published recommendations for member states stating each country could choose whether to prohibit Huawei on its own. Yet, it is also going to publish a report on the decisions of the individual member states regarding Huawei equipment. Members might construe that as a soft nudge to toe the line.
China responded by saying that it may prevent Nokia and Ericsson from exporting its Chinese-made products abroad. Beijing caveated this by stating it will do so only if the EU is tough on Huawei regarding 5G bans.
Nokia is well-entrenched in this battle. Nokia is central to the 5G in regard to the trade war between the U.S. and China.
Nokia Is Under New Leadership
The company has just welcomed a new CEO in Pekka Lundmark. Under former CEO Rajeev Suri the company saw its stock value decline. In May 2014 when Suri took over stock traded in the mid-$7 range. NOK shares traded around $4.50 upon his exit. So, Nokia’s market capitalization declined by roughly 40% under Suri’s tenure.
Lundmark was with Nokia from 1990 to 2000 and went on to executive roles in other businesses. While leading Fortum, its stock rose.
Lundmark is experienced in business development and strategy which should serve the company well given its environment. Nokia is betting that he can use those same skills to navigate the 5G competition. His ability to make deals is going to be central to his tenure.
Tailwinds
Nokia is becoming more efficient with capital. The company reported a Q2 year-over-year 21% increase in net profits despite an 11% drop in sales. However, the 5G revolution should provide increased sales over the coming years. So, should Nokia be able to increase capital efficiency while garnering more sales the future looks good.
Nokia’s new CEO seems to be more media savvy than its previous one. If he can maneuver Nokia into a position that leverages political narratives the company can again be what it once was.
The analysts who cover Nokia stock for The Wall Street Journal are generally positive. Those 31 analysts predominantly rate it a buy (17) or a hold (11). Those opinions are generally a reflection of the ideas above.
Buy, Hold, or Sell Nokia Stock?
I believe Nokia stock is a hold for now. However, any merger talks which align it with American companies make it a buy. Further, news that Nokia can or has jumped ahead its rivals in 5G contract signings would make it a buy. If you own to now, there’s no reason to sell.
As of this writing, Alex Sirois did not own shares of any stocks mentioned above.
