Can Nokia (NYSE:NOK) stock rise again?
The Finnish telecommunications company that was founded as a pulp mill in 1865 has been a perennial underperformer since the 2009 financial crisis. Long-term shareholders of the company have not enjoyed the benefits of the longest bull market in history over the past decade.
And while many people may have given up on Nokia stock, which now trades for under $5 per share, there may still be some reasons to turn bullish on Nokia’s outlook.
The U.S. Government and Nokia
While retail investors might be ready to give up on Nokia, the company is still attracting interest in some pretty high places, including the U.S. government.
U.S. Attorney General William Barr has suggested that his government should buy a stake in Nokia to secure access to its fifth generation (5G) wireless technology infrastructure and prevent China from dominating 5G through Huawei Technologies.
Like the U.S., other governments, including the U.K.,, have banned Huawei from supplying 5G networks in their countries over fears that the Chinese company poses a security threat. As a result, various governments are now looking for alternatives to Huawei.
Finland’s Nokia, which is seen as secure and apolitical, could be that alternative supplier of 5G networks, not just for the U.S. but for other countries around the world, such as Germany and Canada.
The Finnish government is taking the possibility of a U.S. equity stake in Nokia seriously enough that it has been buying up NOK stock in a defensive effort to ensure that the company remains under its control. As more governments around the world look for ways of building their 5G infrastructure without Huawei, demand for Nokia’s products could increase.
5G Rollout
Governments and politics aside, 5G wireless is coming quickly. Industry estimates indicate that 5G connections in the first quarter rose 308% quarter-over-quarter to 63.6 million, as more than 100 smartphone models supporting the latest wireless technology went on sale.
By year’s end, more than 200 commercial 5G networks are expected to be in operation, compared to 82 at the start of the year. Allied Market Research forecasts that 5G technology’s return on investment will grow to $320.1 billion by 2026, representing a compound annual growth rate (CAGR) of 132.8%.
And Nokia is managing to secure several lucrative contracts. U.S. satellite TV provider Dish Network (NASDAQ:DISH) which aims to build a 5G network in the United States by 2023, recently signed a contract to have Nokia supply it with 5G core software.
The Finnish company also recently secured a contract to be the primary partner of Telefonica’s (BME:TEF) deployment of 5G wireless technology in Spain. And Nokia also scored a legal victory when a German court ruled against the unauthorized use of its technology by German carmaker Daimler (OTC:DDAIF) and ordered the automaker to respect Nokia’s intellectual property.
The Bottom Line on Nokia Stock
At $4.11 per share, Nokia is firmly in penny-stock territory, and its share price has been depressed for many years now. But investors with a bullish macro outlook may choose to see its shares as cheap at current levels. They may also think that the stock’s decline has created an advantageous buying opportunity. At the stock’s current price, Nokia won’t have to move mountains to provide shareholders with a healthy return.
A majority of analysts continue to believe that Nokia stock can climb meaningfully above its current levels. Among 28 analysts who have 12-month price targets on Nokia stock, the median price target is $5.34 a share, with a high estimate of $6.50 and a low estimate of $3.67.
The median price target is 30% above the stock’s current level. That would be a healthy return for any investor.
While Nokia stock has disappointed its owners for a long time, the rollout of 5G networks around the world and the Finnish company’s favorable reputation should help to bolster its business and share price in the medium term. Investors should grab the stock while it’s still trading below $5 per share.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
