Once the king of mobile phones, Nokia (NYSE:NOK) has transformed itself into a different type of company. The company is a leading provider in network infrastructure and other network solutions. This makes NOK stock a crucial player in the upcoming 5G revolution.
A lot of investors have been asleep on this stock for years as it continued to win major contracts. However last year the enterprising folks at the Reddit forum r/WallStreetBets took attention to the stock. This fueled a massive short-term rally in NOK stock that has since died down.
I believe though other investors though are beginning to realize the value of NOK stock. Since it bottomed out at about $3.80, NOK stock has been on a steady uptrend and is now trading at close to $6.
Here’s why NOK stock would make a fine addition to an investment portfolio.
Nokia’s 5G Business in China Holds Plenty of Promise
Nokia continues to make strides in its 5G business. The company has secured contracts with a wide array of telecom providers all over the world. Its most notable recent win though is the company’s first 5G radio contract in China. This is a significant win for the Finnish company as China is a massive market for 5G. Currently half of the world’s 4G base stations are in China. Extrapolate that number to the 5G rollout and you can see how much of a massive opportunity this is for the company.
China is aggressively rolling out its 5G infrastructure network. Currently, the country has the world’s largest 5G network with 260 million mobile connections and roughly 916,000 5G base stations. The country is targeting to hit a penetration rate of 40% by 2023 which translates to 560 million 5G users.
While Chinese vendors tend to get the vast majority of government contracts, Nokia can position itself as the western-based vendor of choice. This is due to the current geopolitical tensions between China and Sweden making it difficult for rival Ericsson (NASDAQ:ERIC) to secure deals.
NOK Stock Is Cheap at these Prices
Despite having a share price of less than $6 and being a favorite of the r/WallStreetBets crowd, Nokia is a mature and stable company. NOK stock is trading at a market cap of $33 billion. This makes NOK stock a suitable investment for medium-risk portfolios. The good news is that this stock is actually trading at relatively cheap valuations.
Wall Street analysts have NOK stock at a “moderate-buy” rating as compiled by Tipranks. The stock has an average price target of $7.23 which is 24.6% higher than current prices. Analysts’ price targets range from a low of $5.79 to a high of $8.
Looking at the company’s financial metrics it can be seen that NOK stock is trading at a reasonable valuation. Currently NOK stock is trading at a forward price-earnings ratio of 14.9x. This is well below the S&P 500’s current P/E ratio of about 30x. NOK stock’s P/E ratio is also lower than the Dow Jones Industrial Average’s P/E ratio of 23.6x. Being conservative and assuming NOK stock would then trade at the Dow Jones multiple, would imply an upside of about 57%.
Nokia is a solid business and something investors can buy and hold for a very long time. In Q2 2021, the company had ample liquidity with 3.7 billion euros in net cash. Q2 2021 is the fifth quarter in a row since the pandemic that the company has had positive net cash flow. The company is clearly generating value for its shareholders as its return on invested capital for the quarter was 18.4%.
Investor Takeaway
It is rare to see a stock that has characteristics of both growth and value. I believe NOK stock though is being slept on by a lot of investors. The company is a key driver of the 5G revolution and is trading at a relatively cheap price.
Investors should consider making Nokia a part of their portfolio.
On the date of publication, Joseph Nograles 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.
