While the markets have been in a near free-fall, oddly enough, we’ve seen shares of Nokia (NYSE:NOK) actually rallying. That’s right, Nokia stock is up 5.6% so far this month and up 3% this quarter. That compares to the Nasdaq’s overall losses of 10% and 18% during the same span, respectively.
So the question really boils down to, should investors continue to bet on Nokia stock outperforming the broader indices?
Trading Nokia Stock
After a run to just over $6 per share earlier this month, Nokia stock came under heavy pressure. After a quick flush down to uptrend support (blue line), NOK stock was an attractive buy. The bounce since has been fast and furious.
So what do we need to see to keep betting on NOK?
Preferably, bulls want to see Nokia stock stay above downtrend resistance (purple line). We can allow NOK stock to go slightly below this mark, given its bevy of moving average support between $5.65 and $5.68. Below here though and we’ll likely get a flush down to uptrend support. I like Nokia stock so long as it remains over this level.
Should the markets come under further pressure into year-end, buyers may want to keep this stock on the radar. If we can get a low-risk entry near uptrend support, it’s a very reasonable trade for many. What I really want to see now is Nokia stock ride up to $6.10 to $6.20, where it will hit the top of its recent channel. Failure to take out the December highs could setup for some intermediate chop.
Valuing NOK Stock
Nokia quietly holds a $32 billion market cap, even though the name is routinely left off many investors’ radar. Many may think of it as a company like Sprint (NYSE:S), which seems like a small cap due to its single-digit price. It too though commands a market cap north of $24 billion. But that’s not really the case, particularly as Nokia gears up for 5G deployment, (here are five 5G plays, by the way).
After the company agreed to license its name rather than manufacture all of its smartphone devices, Nokia opened up a way to increase its margins and become leaner. As a result, shares are starting to find their groove.
Revenue for the year is mostly flat, at nearly $26 billion. Expectations for 2019 aren’t much rosier, with estimates calling for $26.4 billion in sales. After break-even operations in 2018, analysts expect Nokia to tally 36 cents per share in earnings next year. That leaves NOK stock trading at about 15.7 times earnings. Granted, Nokia has essentially doubled its revenue from two years ago, also giving its gross profit a big lift. So far, those gains have yet to really lift the bottom line.
That didn’t stop Bank of America analysts from slapping a 6 euro price target on the name. The catalysts? The 5G rollout and increased scrutiny on Chinese manufacturers like Huawei and ZTE. Converted to U.S. dollars, that’s a rally to roughly $6.84, an increase of almost 20% from current levels.
Will it get there? Its fundamentals aren’t the best in the world. But if NOK stock starts to boost its bottom line and as long as its chart stays intact, there’s nothing stopping such a run.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, he did not hold a position in any of the aforementioned securities.
