Nokia Stock Is Living Up to Its Potential, But You Should Remain Cautious

For over a year we haven’t had normalcy especially on Wall Street. The pandemic was a reset button for the whole world. We are trying to normalize but we are not there yet. The reopening process in the U.S. is going well. This is in spite of a sharp increase in new Covid-19 cases. The inoculation has given a people extra courage to do more. This is turbulence since the outbreak has been especially egregious in the stock market. One concept remains a constant, which is the 5G upgrade cycle. It is late and slow developing, but it is finally here. That was the reason for optimism in Nokia (NYSE:NOK) stock.

a backdrop featuring the Nokia (NOK) logo with a mobile phone featuring the Nokia logo on its screen in the foreground
Source: rafapress / Shutterstock.com

The whole world was eager to get into faster speeds. However, NOK stock seemed to suffer grave injustice from sellers.

Late last year it fell under $3.5 per share before it found footing. It also found something else that took it to the moon. Nokia fell into the clutches of the Reddit gang. It became part of the meme stocks that rally to no end.

From the October low to the January high, the rally was 200%. It gave a massive chunk back quickly and fell below $4 again.

NOK Stock Is on a Roll

Nokia (NOK) Stock Chart Showing Progress
Source: Charts by TradingView

Luckily for the bulls, the last earnings report breathed life back into it. NOK stock is enjoying a 40% climb since April. More to that, if price rises above $6 it could catch fire. That would put it into the super spike zone from January. Soon management will have the chance to reconfirm their progress.

Investors are fickle these days. Just look at the reaction to Apple (NASDAQ:AAPL) last night. The company blew all metrics away and the stock fell after a brief headline pop. At these market altitudes traders have little tolerance. I don’t doubt the quality of the report. But Wall Street has a developed a habit of picking inappropriate expectation levels. When the headline comes out it causes disappointments in the stock price. These effects usually are temporary but they do happen.

Consequently, investors in NOK stock need to have conviction. I did, but from a lower level. Compare both charts and you can see how they live up to the upside potential already. Therefore, up near $6, I would rather wait out of it until I get more information.

I want to learn more about the Federal Reserve’s timing of their next move. Maybe they will tell us about that today. One thing is for sure, they are not going to add stimulus. Furthermore, when the taper ends, they will be taking out liquidity. Last time they tried quantitative tightening in 2018, the markets crashed.

Management Needs to Show More

Fundamentally, Nokia stock is nothing special. The company still loses money but it is relatively cheap. Owners of it only allot its stock price 1.3 times its sales. It could get cheaper but value is not a reason to short it. The “nothing special” comment comes from their sales efforts. Revenues are flat to down for the last four years. In addition, net income worsened by almost 50%. They now lose $2.5 billion based on the trailing 12 months. Those are not stats to promote a bullish thesis. The CEO has already had a year on the job, he may finally be ready to show tangible improvements.

I get that investors look for the future successes, but this is not a budding company. It is decades old trying to adapt to new conditions. Hopefully they can do it before the equity markets fall into the hands of the bears. We haven’t had a correction in a very long while, this increases the risk of one this year.

I am not ragging on Nokia, they still have a legitimate shot at success. I like that they generate $2 billion in cash flow from operations. This is a sign that they will have the means to execute on plans. Recently the political rhetoric and tensions between the U.S and China went up a notch. This is likely to play into Nokia’s hand because the U.S. will pursue restricting Huawei.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Nicolas Chahine is the managing director of SellSpreads.com.


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