Nokia Corporation (NYSE:NOK) shares have jumped in recent days from about $2.60 to around $3.56 per share. That is a huge percentage move in just about the last 10 days. This stock has been disappointing and it has been scraping the bottom near 52-week lows, but some investors became hopeful when news came out that the Nokia Lumia was sold out. It seems that at such low levels, a little bit of good news was enough to spark a rally and perhaps create some short covering. However, Nokia has many challenges and there is a good chance the rally will be short-lived. That is why investors should consider these 4 points and sell into the rally now:
1) Technology shifts are often so big that industry dynamics can be changed forever. Once a tech company loses the edge it had, it can be hard if not impossible to regain it. The mobile phone industry in particular has a growing list of companies that were once dominant but now are severely challenged by Apple's (NASDAQ:AAPL) dominance. The list includes Motorola, Research in Motion (RIMM) and of course, Nokia. In recent history, no mobile phone maker has regained dominance after losing it.
2) Past rallies have also faded. In June, Nokia shares popped up due to speculation that Samsung (OTC:SSNLF) might be interested in buying Nokia, but the company denied those rumours and the shares went on to make new lows in July. That rally was worth selling into, and investors who did fared better than those who bought.
3) Stocks that have seen large declines are often subject to tax loss selling season in late November and into December. This is because investors want to offset profits by selling stocks that have posted losses for them. Some investors also like to start the year "fresh" by selling underperforming stocks in their portfolio. That means Nokia shares could continue to have substantial selling pressure for the next few weeks.
4) Analysts expect Nokia to continue posting losses for 2013 and 2014, so the news of a phone being sold out is not likely to change the fortunes of this company. One analyst was recently discussing the outlook for Research in Motion and Nokia and he was quoted in Barron's as saying:
This isn't investing, it's gambling. When the music stops, sometime next spring, as first-quarter smartphone sales are reported, reality could set in for both companies. I don't think either one stands much of a chance over the long haul; they've simply fallen too far behind Google and Apple and Samsung to ever matter much again, regardless of how good their devices are.
While there is always a chance things will work out for the bull case, it would take a near sea change of events for that to happen. If Nokia can find a way to challenge the Apple "ecosystem" with music and apps, it could make another run for recapturing its former glory. A true turnaround could take this $3 stock much higher, however, Nokia has been trying to mount a substantive turnaround for years without major success and that is why it remains a single digit stock.
Here are some key points for NOK:
Current share price: $3.56
The 52 week range is $1.63 to $5.87
Earnings estimates for 2012: a loss of 35 cents
Earnings estimates for 2013: a loss of 6 cents
Annual dividend: 18 cents per share which yields 5.3%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.