Is Nokia’s Stock A Buy, Sell, Or Hold?

Investors in Nokia should not trust the dividend after the company announced its earnings last week. Nokia (NOK) cut its full year outlook and completely abandoned its 2011 profit expectations. The company’s shares have tumbled 21% as the company has seen its market share evaporate since the introduction of the iPhone. Sales revenue is going to be well below the $8.75 billion in sales originally expected for the year.

Nokia stock

Nokia’s Earnings Drop

Nokia’s stock is down to $6.69 per share and is under a lot of pressure. The company is currently paying a dividend of 46 cents per share. That is a 5.7% yield. The company is relying on its multi billion dollar cash hoard to keep the dividend safe for the short term but the company’s earnings make the dividend look shaky over the long term. Lower sales and rising operating losses could quickly cripple the company’s financial position. I expect Nokia to reduce its dividend once again and to start laying off some of its nearly 60,000 employee labor force.

Investors in Nokia have to e concerned that the company cannot provide any guidance for the current year and does not know what the future will look like for the company. The company even admitted that they have mismanaged inventory in foreign countries like China and is losing market share. Cellphone shipments appeared higher over the past few quarter because the company built up inventory at many of its distribution facilities. Nokia failed however to sell many of these phones and was left with a glut of unsold inventory.

Nokia’s Outlook

The stock has been massively downgraded by every analyst and EPS estimates have fallen from 60 to 70 cents per share for the year to 17 to 20 cents per share. Some analysts are even forecasting a loss for next year. This was a shock to many people including me. I never thought that Nokia was facing such dire circumstances. It was clear that the company was losing market share but the loss of market share is rapidly accelerating.

At $6.69 a share, Nokia is a speculative buy at best. Shares have not been this low since the 90’s. Speculative investors can buy the shares on the hope of a takeover by Microsoft or a stabilization in market share. Nokia’s hopes rest on its Windows based phones that are set to roll out soon. The stock has become too risky to be a core holding of a prudent investor’s portfolio and should only be purchased by risk takers.

Do you think that investors buying Nokia are getting a good value or catching a falling knife?

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9 Responses to “Is Nokia’s Stock A Buy, Sell, Or Hold?”

  1. avatar optionsdude says:

    Personally, I think it is a falling knife. The handset business is brutal with intense competition on many fronts. It is also very fad and hit dependent. Ending up on the wrong side of the latest fad can damage business for years. Just ask Motorola. The RAZR was hot, then it was not. I would find other places to invest my money.

  2. Fallilng knife (see guest article I sent you on this topic TODAY). Talk about a coincidence. They are being eaten alive by the higher margin, sexier smart phones.

  3. avatar Richard says:

    I sold out early last year after seeing Nokia’s competitive position deteriorate worldwide. The company didn’t make a good follow-up to the N900 (last successful phone), is slow on execution up and down the company (bureaucracy has paralyzed solid engineering teams), and is embarking on 2 dangerous technology transitions (symbian -> MeeGo -> Windows).

    It’s sad to see this happen, but tech changes so quickly. I bet executives were surprised that upstart phones from the US could upend the global order so quickly. To be successful, a product needs to generate buzz and a critical mass for sustainable adoption to take hold. Nokia failed to deliver compelling new high-end phones for a year following the N900 and is paying dearly.

    Watch out, RIM.

  4. avatar Jordy says:

    I like what Warren Buffett says about tech stocks. He doesn’t buy them because he cannot see what the companies will look like ten years from now.

    I like what Kramer said the other day about investing in the “highways” that make cell phone communication possible. He referred to companies likes Cisco, Sandisk and Verizon .

    Although cell phones will continue to rapidly change, the airwaves on which they travel will not. That makes sense to me.

  5. avatar Bryn says:

    I have a small holding in NOK, which is fairly underwater right now. I intend to hold on to it till at least next year. While I’m not really a Windows fan, a Nokia handset running Windows phone does have immense brand recognition. Pretty much anyone out there has heard of Nokia, whereas companies like HTC are much less well known to the “average” person.

    NOK does at least pay a dividend, or at least they have in the past. I doubt they will be able to keep their dividend at their previous levels however.

    My bet is on an eventual buy out by Microsoft, who are probably scratching their heads right now trying to come up with a use for that massive investment they just made in Skype. Windows Phone + Skype + Nokia? That definitely has the potential to be a disruptive technology, although the carriers would probably HATE it.

  6. avatar Stephen says:

    Hi folks,

    While I totally get Buffet’s maxim on tech investments, I have a niggling feeling that it is, quite rightly, founded on the fact that he is of a different generation, by which I mean that his wisdom derives precisely from the fact that he acknowledges his areas of ignorance… if you see what I mean.

    If we accept that tech investments accrue a disproportionate risk because we have no idea where they’ll be in ten years, does this mean that medium term investments should also be avoided (and I’m not talking short term speculation here)?

    It occurs to me as a 41 year old who’s used computers et al since the age of… err… eight… that a solid tie-in between MS & Nokia would, if marketed well (and this includes dealing with bugs, Bill… or Steve), lead to a considerable resurgence in Nokia sales as THE smartphone to buy. Notwithstanding the designer label and social cachet appeal of Apple products, the institutional need for Unix/Linux and the rosy long term prospects for opensource/Android, surely a Windows-based phone would stand out in the global marketplace. After all, most of use Windows.

    Imagine the scenario in the shop:

    VENDOR: These three phones cost the same price and have similar features. Phone A is proprietary and resembles a Mac. Phone B uses opensource. Phone C uses Windows.

    CUSTOMER: Which one will allow me to everything I do on my computer without having to learn anything new?

    VENDOR: Phone C

    I make no claims of expertise here. I was just thinking of taking a mid-term punt on Nokia shares (provided I see circumstantial evidence of a Microsoft tie-in) and wondered if I’m off my rocker.

    Cheers guys,

    SR

  7. avatar Mike says:

    Unfortunately Stephen, your argument that most people will want something that is the same as their ‘computer’ makes the assumption that they have a Microsoft computer. The likelihood is that within the next 2 years most people will be using tablet computers, and the majority of those are likely to be running Android (or be an iPad). If you want something that is easy to learn as your tablet, then you are likely to buy either an Android phone or an iphone, depending on whether you love Apple or hate them. Unfortunately the Nokia/Microsoft branding will not be persuasive enough, especially given the timeframe that it will take for first deliveries (and then ironing out the initial problems). The world is changing so fast – Amazon are likely to release an Android tablet to further their Kindle brand – and they are likely to try and price it attractively. The competition is already there and growing fast. Unfortunately, I think that whilst the others are already on trains that are gathering speed and heading off into the distance, Nokia/Microsoft are still in the engine shed designing the trains – and before they can start their journey, they still have to build the track!

  8. avatar Jay Kenobi says:

    Mike,

    I don’t know how to say this politely but your views are dead wrong.

    Let me explain. I have been an IT Professional since 1999 and involved with computers since 1994. Now that being said I am a solid Mac user in the home environment however I am in the 8% minority. Windows still dominates the home market by 80+ %… Now lets shift and consider the enterprise market. Most companies and by that I mean 90%+ are firmly entrenched in Windows environments. PCs dominate the cubicles. This will remain the fact for the foreseeable future as the cost to maintain them is relatively low and you can hire people at $30 per hour to support them. Apple techs on the other hand bill out at $100 per hour minimum. You do the math. Enterprise aren’t switching to Apple – its a simple numbers game here.

    As for mobile the enterprise is losing confidence in RIM – and BlackBerry. What with the recent partnership of Microsoft and Nokia enterprise level customers will soon be coming on board there as well. It just makes sense from a business perspective to plug a Windows based phone into a Windows based operating environment. Not to mention that the Windows phone will seamlessley integrate with the Exchange Server back-end at some point in the future it really becomes a no brainer for IT Managers. I’ll be writing more about this on my blog at http://www.vancouvergadgets.ca in the near future. In the meantime now is the time to by up cheap Nokia stock.

    Jay

  9. avatar Andy Brice says:

    I reckon Nokia’s new Windows Phones could be a watershed moment.

    Nokia has always brought a beautiful, desirable Scandinavian design aesthetic to cutting-edge technology. But since the smartphone revolution made software a phone’s main selling point, they have struggled to adapt and reposition themselves.

    Windows Phone 7 combines Microsoft’s expertise for software development models and supply chains with their first work of truly innovative and impressive interaction design.

    I think this partnership can deliver a worthy competitor to Android and the iPhone. And if so may signal that Nokia is finally back on form.

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