While many investors are, understandably, losing patience with Nokia (NYSE:NOK), with a new Chief Executive Officer in place and a global 5G rollout underway, now is not the time to give up on Nokia stock.
The perennial under-performer looks to finally be turning a corner with the launch of 5G wireless networks that will fuel the growth of cutting edge technologies such as artificial intelligence, virtual reality, the Internet of Things and self-driving vehicles.
While Nokia’s current share price of $4.08 makes it a penny stock, savvy investors should view it as a buying opportunity and are likely to be rewarded for taking a long-term view on the company.
A Closer Look at Nokia Stock
Canada is the latest country where Nokia has landed a large contract to implement 5G services. It’s hard to overstate how big the global market for 5G will be and how significant it is for Nokia’s financial performance.
By the end of 2020, 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%.
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. And Nokia is right in the middle of it all.
The Finnish telecommunications company is busy setting up 5G networks in countries all around the world. In addition to Canada, Nokia has been hired by U.S. satellite TV provider Dish Network (NASDAQ:DISH) to help it build its 5G network across America by 2023.
Specifically, Nokia has signed a contract to supply Dish Network with 5G core software.
U.S. Attorney General William Barr has suggested that his government should buy a stake in Nokia to secure access to 5G wireless infrastructure and prevent China from dominating 5G through Huawei Technologies.
Other governments, such as the U.K., have banned Huawei from supplying 5G networks in their countries over fears that the Chinese company poses a security threat.
Various governments are now looking for alternatives to Huawei, with many casting their gaze in the direction of Nokia. Other countries where Nokia has scored 5G contracts include Spain, where the Finnish concern has inked a deal to be the primary partner of Telefonica’s (BME:TEF) deployment of 5G wireless networks.
A New Chief Executive Officer
Another reason to be optimistic about NOK stock is the fact that the company has a new Chief Executive Officer who is focused on one thing only — turning around the company and bolstering the Nokia stock price.
Pekka Lundmark, who became CEO in August, recently outlined his restructuring plans for Nokia. The focus is on restructuring Nokia into four new business groups: Mobile Networks, Internet Protocol and Fixed Networks, Cloud and Network Services, and New Technologies. The aim is for Nokia to be a global market leader in each business unit as measured by profitability.
“Going forward, we will have a more rigorous approach to capital allocation and will invest to win in those segments where we choose to compete,” said Lundmark in announcing the company’s restructuring.
Time will tell if the turnaround effort is successful. But it could not come at a better time for the company. Nokia has been losing ground to its main rival, Swedish telecommunications company Ericsson (NASDAQ:ERIC). Ericsson’s revenue increased 7% year-over-year in its latest quarter.
By comparison, Nokia’s revenue has dropped 8% in the same time period.
Becoming a market leader in segments where it competes and bolstering profitability will go along way to restoring the faith that markets and investors have in NOK stock.
It’s also encouraging that the company’s new CEO has vowed to do “whatever it takes to win in 5G.” Given the huge market opportunity presented by 5G, having leadership that is committed to succeeding in the space is critically important.
Buy NOK Stock on the Cheap
At around $4.15 per share at this writing, NOK stock is not setting the world on fire. It has been a penny stock for the better part of a decade and investors are justified in feeling exasperated. But people with a long-term time horizon should view the stock as cheap at current valuations.
Nokia stock should be viewed as a buying opportunity while trading at under $5.
The rollout of 5G networks around the world and the Finnish company’s favorable reputation compared to Huawei should give Nokia a competitive advantage.
Analysts appear to agree. Among 28 analysts who have 12-month price targets on Nokia stock, the median price target is $4.40 a share, with a high estimate of $6.00.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
