5 Reasons Nokia Is a Good Value

by: George Spritzer October 02, 2008 | about stocks: NOK    
George Spritzer

George Spritzer

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Nokia Corp (NOK) is a global leader in cell phones and mobile devices. The company is based in Finland. It’s selling near its 52-week low at less than eight times next years earnings.

Here are some reasons I like Nokia, along with some potential short term negatives:

  1. Nokia has a high A credit rating from S&P. They have a solid balance sheet with low debt, loads of cash and have been generating high operating cash flows.

  2. Nokia’s most recent return on equity is 47%. Over the last eight years the annual ROE has ranged between 19% and 51%.

  3. Dividend yield of 4.4% is quite attractive for a solid growth stock.

  4. Nokia may be losing some market share in the US to high-end devices, but it is rapidly gaining traction in emerging market countries like India and China, because of Nokia’s very strong brand name and focus on entry-level devices.

  5. The company is continually innovating and improving their products. Just recently, they announced an acquisition of OZ Communications to beef up their e-mail and instant messaging services. They will soon be releasing a new device code-named Tube, which is a cheaper IPhone alternative in the $200-$300 range. Visa recently signed a deal to give some Nokia users the ability to make "contactless" payments in stores just by flashing their phone at an electronic scanner.

Some potential negatives:

  1. Fidelity Magellan Fund is the largest Nokia holder. Magellan has been struggling lately and if the fund experiences significant redemptions, it may be forced to sell some Nokia stock. Of course, that would make the stock an even better buy longer term.

  2. Several legal disputes with Qualcomm.

  3. Lower handset margins in the high end of the market.

Given recent market conditions, I would use a dollar cost average approach to acquire a full position in Nokia. If the stock price were to go up 15% from these levels (currently trading around 18.5), I would consider writing out of the money covered calls against the position to take advantage of the recent high implied volatility in options.

Full Disclosure: I am long a starter position in Nokia.

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This article has 6 comments:

  •  
    Oct 02 06:39 AM
    I must agree that Nokia is great value. Insider news - the company us undergoing a series of cost-cutting measures including 3 months of travel ban among employees. This save the company tens of millions of dollars at least. The results will be great!
    Reply | Link to Comment
  •  
    Oct 02 06:41 AM
    I cannot agree more that the company offer great value. It is undergoing a series of cost-cutting measures, including 3 months of travel ban among employees. This saves the company tens of millions of dollars at least. The results will be great!
    Reply | Link to Comment
  •  
    Oct 02 08:54 AM
    Nokia realized that UI and mobile internet must be aligned with their decices.
    Sites such as yahoo, facebook, jmise.mobi looks great at symbian.
    Reply | Link to Comment
  •  
    Oct 02 03:06 PM
    which legal disputes with Qualcomm. I thought all were resolved a couple months back.
    Reply | Link to Comment
  •  
    Oct 02 08:36 PM
    Sher-
    You're right. A settlement was reached in late July, but specific financial details were not disclosed. So there is still uncertainty caused in the stock price until we can see the impact of the settlement terms.
    Reply | Link to Comment
  •  
    Oct 03 04:53 AM
    well, they're certainly turning out some good devices. I like my new E71 - does everything my Blackberry used to do, and I set up gmail and Flickr on it in about 2 minutes. fast for emails, good camera, can shoot video, and long battery life.
    Reply | Link to Comment
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