When I last checked in on Nokia (NYSE:NOK), the company was getting ready to report its second-quarter earnings. Despite posting earnings per share (EPS) that beat analysts’ expectations, Nokia stock has been trading in a tight range since the earnings report. I expressed that investors proceed with caution at that time. And despite increasingly bullish opinions, I still hold that opinion.
Recently, analysts give Nokia a more favorable opinion. Much of their bullish sentiment is because of the buildout of the 5G infrastructure in the United States. However, the key words in that sentence are “in the United States.”
The United States-China Relationship Has Changed
Despite the Covid-19 pandemic, much of the U.S. will have 5G coverage by the end of 2020. The United States continues to move at warp speed (pun intended) to get 5G coverage. And much of that has to do with China. Winning the 5G race has become a matter of national security.
A key policy shift of the Trump administration has occurred in the United States relationship with China. Last year, the trade dispute put that relationship on the front burner. And if it wasn’t for a few other things going on in the country, that relationship and what it should look like going forward, would be one of the key issues of the campaign.
However, with social unrest on top of a global pandemic (which originated in China) people are talking about China for other reasons. But Nokia investors shouldn’t ignore this situation. As Josh Enomoto wrote recently, the tensions with China didn’t arrive overnight.
…President Trump has reversed years of American corporate and political complicity regarding selling the soul of this nation to communist China. For once, the Chinese and by deduction NOK rival Huawei have felt some heat, which has contributed to this year’s Nokia recovery narrative.
And Nokia has benefited from this policy shift. However, the analyst firm Trefis isn’t so sure. In fact, they believe that Nokia could face a slowdown as the economic downturn may delay company’s spending plans.
And that takes us across the pond to Nokia’s home continent, Europe.
The Battle with China Hits Home
To be fair, the battle may not be across the entire continent. As I wrote in July, France recently chose Nokia over Huawei, and United Kingdom prime minister Boris Johnson has imposed a ban on Huawei equipment after Dec. 31.
All of these are favorable developments for Nokia. And by reading the transcript from the company’s last earnings call, that growth is not factored in yet.
But the same can’t be said for Deutsche Telekom (OTCMKTS:DTEGY). In January of 2019, Europe’s largest telecom provider stated that a 5G rollout in Europe would be delayed by up to two years if Europe banned Huawei.
In April, former Nokia chief executive officer Rajeev Suri admitted that 5G rollouts in Europe could be delayed due to the novel coronavirus. And as recently as last month, was lobbying to ensure that “no telecoms equipment vendor should be barred from Germany on political grounds.” The company was referring to Huawei which some German lawmakers wish to ban citing national security concerns.
Is Nokia Stock a Buy?
Let’s be clear about what’s going on. Nokia finds itself in the middle of some geopolitical forces. Some are helping them. And some, well, not so much. China is becoming an increasingly tough market to do business in. And while the United States looks great now, where will the revenue come from when the U.S. is more developed? Nokia has high hopes for Latin America, but Europe is also a key battleground.
Nokia stock is up approximately 23% for the year. Its key rival Ericsson (NASDAQ:ERIC) is posting a gain of approximately 28.5%. That’s a nice reward for investors who have had the patience to hold the stock. But it wouldn’t be the worst idea to hold tight for now.
In fact, a good idea may be to wait until after the election. Which coincidentally is right around the time Nokia delivers its next earnings report. That will give all of us a clearer picture on where public policy will be regarding Nokia, China, Europe, and 5G.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.