I last wrote about Nokia (NYSE:NOK) stock in December. Nokia had gone on a 24% run, and I wondered if it could keep it up.
That was before the entire Reddit debacle at the end of January that saw all kinds of terrible stocks make millionaires. One of those stocks was Nokia, which hit a 52-week high of $9.79 on Jan. 27.
“In November, I suggested that Nokia stock would get to $6 sometime in 2022. For all I know, it could do it next month if Microsoft (NASDAQ:MSFT) or some other tech giant decides it needs to make a large acquisition for no good reason,” I wrote on Dec. 7. “The point is: I don’t believe even speculative investors ought to expect double-digit returns over the short run for the simple reason that Nokia’s had a tough time staying above $4 with any consistency in the last couple of years.”
The reality is that Nokia’s traded in a fairly tight range over the past six months between $3 and $4. If you were lucky enough to buy NOK around $4 a week before it hit its 52-week high, I hope you sold near its 52-week high.
I don’t think it’s got the stuff to go back there anytime soon. Here’s why.
Nokia Is Not a $10 Stock
At best, it’s worth $6, 12 months from now. And that’s assuming a lot goes right. Alternatively, it gets acquired.
In my December article, I hypothesized that it could get to $6 in 2021 if someone like Microsoft were to buy it “for no good reason.” It seems I’m not the only one with this idea.
Recently, Benzinga staff writer Henry Khederian discussed whether AT&T (NYSE:T) or Verizon (NYSE:VZ) should buy Nokia. To determine the answer, it asked 1,000 people whether either should buy the Finnish telecom equipment provider – or neither. Both carriers have business relationships with Nokia.
The survey results showed that 30% believe AT&T should buy Nokia, 28% think Verizon should, and 42% of the respondents felt neither should make a deal in 2021. The primary reason to pass on Nokia: it has too much debt.
When you add Nokia’s debt woes to those of AT&T and Verizon, not to mention the debt incurred to buy it, it’s easy to understand why neither company has made a play for the 5G equipment maker.
One plus one would equal one-and-a-half, not three, as is the reason for making an acquisition in the first place.
So, to make a bet on NOK stock going to $10 on the possibility of a buyout is pretty far-fetched, in my opinion.
Nokia’s Got to Dig Itself Out
InvestorPlace’s Tom Taulli had some recent words of wisdom regarding Nokia.
[T]he 5G wave was supposed to bolster the business, but the results have been mostly mixed. One reason for this was a miscalculation on the product roadmap. And another issue has been the intense competitive environment. For example, Samsung is making inroads in the 5G market.
In September, the last time I wrote about Ericsson (NYSE:ERIC), Nokia’s biggest competitor for 5G supplier contracts worldwide was doing a bang-up job growing its business in China.
“As Ericsson stated in June, the contracts it’s won from all three of China’s major wireless carriers (China Mobile’s one of them) give it scale in the world’s largest 5G market. That will result in significant profits over the life of these contracts,” I wrote on Sep. 25, 2020. “Projects like the subway line in Shenyang demonstrate why so many of my InvestorPlace colleagues are high on Ericsson stock. While it continues to capture more of the Chinese market, the U.S. and Europe are still fertile ground for its 5G hardware.”
So, for my money, buying ERIC over NOK stock was a smart move.
As I write this, Nokia’s stock gained 7.9% over nearly five months, while Ericsson’s gained 24.6% over the same period.
The Bottom Line on NOK Stock
I don’t think there’s any question that over the next five months – unless Nokia Chief Executive Officer Pekka Lundmark makes some serious short-term changes to its 5G game plan – Ericsson’s stock will continue to outshine Nokia.
Even though its latest quarterly earnings were better than expected, I agree with InvestorPlace’s Matt McCall, who believes the turnaround won’t add tangible value to Nokia’s share price until 2022 at the earliest.
In the meantime, ERIC remains the better buy of the two Scandinavian 5G companies.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
