In my two previous articles, Nokia Will Outperform Apple and Nokia Still To Outperform Apple, I looked at the sum of the parts of Nokia and suggested that Nokia (NOK) is worth between $13.5 billion and $19 billion or $3.70 to $5.10 per share. Since that was an immediate upside of 35 to 90%, I suggested that NOK should outperform Apple (AAPL) as an investment over the medium term.
In the two months since my first article, NOK has returned -9% while Apple has returned -21%. While it's never wise to brag about outperforming yet still losing money, it's becoming clear to some that the Apple luster may be fading. While I think now is probably a good time to buy some Apple because of valuation reasons and extremely weak relative strength, I still believe that Nokia is the better investment over time.
Nokia continues to focus more heavily on it's mapping technology with its purchase of Earthmine today. Additionally, wireless carriers seem to be committed to promoting the Windows Phones to its subscribers and China Mobile is promoting a faster processor version of the Lumia 920 to its subscribers. Any traction that Nokia can gain in it's handheld division will only add upside to the stock that is very undervalued relative to the sum of its parts.
Additionally, Apple appears to have made a few slight missteps with its product launches. I continue to contend that the iPhone 5 continues to appear to be only a minor variation over the previous rendition, the iPhone 4S. The most visible changes are:
- Slightly larger screen
- 18% thinner
- 1/5th lighter
- The larger screen allows for up to 20 app icons to be shown at the same time vs 16 on the older version.
- Camera captures images slightly faster, allowing you to take pictures in low light.
- Camera now has a panorama mode allowing you to piece together photos to make a wide picture.
- Camera can now take HD video.
- Now connected to the fastest cellular data network called LTE, although it is one of the last smartphone makers to do so.
Some important problems with the newer version include:
- Lightning Port connector that connects to speakers, docking stations, wall outlets is much smaller than the older 30 pin connector, making it incompatible with older versions. This will set you back $30+ if you want a new adaptor.
- Apple replaced Google Maps with its own proprietary mapping app,which appears to have some major glitches.
- Newer phone scratches and scuffs more easily.
And sales have arguably been relatively tepid compared to estimates.
It is still my argument that the major catalysts for Apple iPhones have already passed. That is, AAPL received a major shot in the arm 18 months ago when its exclusive contract with AT&T ran out and all major wireless carriers, including Verizon, picked up the iPhone. With this catalyst gone and with other smart phones playing catch-up in terms of features, I believe AAPL's profits might have peaked over the medium-term.
I continue to believe that Nokia has more upside potential than AAPL over the near term. Apple is battling a lack of near term earnings catalysts while Nokia is still undervalued relative to the sum of its parts. Over the longer-term Mac sales will continue to power earnings higher and the stock might be worth a look in the short term given how beaten down it is, but I believe Nokia will continue to outperform Apple. I would continue to recommend investing in NOK over AAPL over the next year to 18 months.