Dump Nokia's Sad Ringtone, Buy BlackBerry

| About: BlackBerry Ltd. (BBRY)

Shares of beleaguered phone giant Nokia (NYSE:NOK) took a pounding last Tuesday, falling as much as 7% following the release of the company's flagship phone, the Lumia 925. I'd like to say it was a surprise that the Street seemed broadly unimpressed by the new flagship phone, but that would not be accurate.

When Is the Recovery Coming?

Over the past couple of weeks, we have talked about the dire state of Nokia, much to the dismay of the company's supporters. By contrast, I have outlined a bullish case for BlackBerry (NASDAQ:BBRY), which is clearly on the opposite trajectory while exceeding earnings and unit expectations. In fact, even as shares of BlackBerry have posted declines over the past couple of days, this is an excellent entry point for long-term investors.

Meanwhile, Nokia shareholders are still unable to accept the reality that Nokia's chances of making a dent in the smartphone market expired once Stephen Elop was brought in to lead the charge in late 2011. Fast forward two years later: Is Nokia any better today than when it was at $10 per share prior to Elop's arrival? Elop's promise, which arrived along with the idea that Microsoft (NASDAQ:MSFT) was going to be a significant upward catalyst for Nokia, has failed.

In fact, the marriage of the "two Steves" (Elop and Ballmer) has been a complete failure. Nokia investors are still hanging on to hope that things are going to turn around, while forgetting that BlackBerry's turnaround has already moved to the next phase. Besides, if Nokia is unable to take advantage of Apple's (NASDAQ:AAPL) recent declines, coupled with uninspiring devices from Samsung (SSNLF.PK), when is the company ever going to recover?

Cost-Cutting Looks Good Only on Paper

There's also the argument that Nokia looks more "streamlined." What does that actually mean? While I do understand the appeal regarding Nokia's cheap share price, investors are still ignoring the signs that the company might have different objectives. Take the recent cost-cutting, for example. Granted, I'm willing to give Nokia's management credit for fixing the balance sheet and improving profitability. But where's the evidence that the company is in this for the long term?

Cutting costs looks good on paper, yes. But this says nothing about the company's ability to compete in the smartphone market. Nokia seems more like a company that is preparing to sell itself than one that is focused on growth. The company has been actively cutting expenses and cutting jobs. Unfortunately, revenue continues to plummet, including a 20% drop in the most recent quarter, which also fell 27% sequentially.

I've made this case once before -- companies don't save their way into growing more market share. There are no known cases in which that has ever worked. It's going to cost money to grow. This, however, has not been Nokia's mindset. Unfortunately, with the market seemingly unimpressed by Nokia's new phone, can we realistically expect that things are going to get any better?

Bottom Line

Nokia's investors are still hanging on to the idea that the company's fortunes will turn and the Lumia will be a ranging success. This is looking less likely today. Nokia will eventually have to spend to survive. Meanwhile, BlackBerry stock is looking more appealing and has a decent shot of reaching $25 level over the next 12 to 18 months as consensus expectations continue to climb.

Consider that, over the past three months, BlackBerry's fiscal 2014 estimates have changed. The company was once expected to lose money, and now the Street is expecting a profit. This level of optimism is not seen in Nokia, which recently missed revenue estimates by as much as 10%, while also posting a 32% decline in device sales. It's no longer a debate as to which is the best stock to own. Dump Nokia, buy BlackBerry.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.