Nuance (NUAN): Nuance is a relatively new play in the smartphone space. Apple’s (AAPL) iPhone 4S uses Siri and for Siri it requires NUAN’s transcription ability to operate. The success of Siri on the iPhone 4S means NUAN’s speech recognition technology is ready for mainstream adoption - which could boost the demand significantly. Siri on the Iphone 4S has received very positive responses and going forward I believe Siri would be an inevitable feature in all smartphones across different manufacturers. There are growing expectations among investors that a future Apple TV could also be powered by Siri, which is a positive for Nuance.
Other than a big Siri opportunity also, NUAN’s business is performing very well. It pre-announced better-than-expected results in October and also announced a $200 mn share buyback. Trading at 16x forward PE, I believe the stock is still undervalued and is not completely building in the upside, which mainstream adoption of its technology can provide.
Nokia (NOK): Nokia is another stock, which is a good buy after the recent launch of its WP7 series of phones. Nokia unveiled its first two Windows Phone (WP) smart devices, the Lumia ($588) and 710 ($378) at the recent Nokia World Event. In addition it also launched four premium S40 Mobile Phones ranging from $84-$161, two of which have comparable hardware/ User Experience to mid-tier smartphones.
I find the products very compelling and believe they can see good consumer traction. This launch is likely the first step in Nokia’s turnaround and I believe the company would start seeing the positive trends from here onwards. With consensus sell side expecting flat year-over-year revenue and earnings in the next year, I don’t believe the market is pricing in any big positives from Nokia. I believe it is a good opportunity to initiate a long position in the company before the broader market starts pricing in the upside potential.
Research in Motion (RIMM): RIMM’s stock price has corrected 68% YTD and it is now trading near its book value. Continued market share losses are a serious concern for the company. I see a further downside in RIMM’s share price unless there are any signs of market share stabilization. I also don’t see any chance of RIMM’s acquisition. The three major players, which will likely dominate the complete smartphone ecosystem going forward, are Apple (AAPL), the Nokia-Microsoft (MSFT) combination and the Google (GOOG)-Motorola (MMI) combination. It will be very difficult for any other player to stand the competition and hence I doubt if any one will be interested in RIMM’s business/assets.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.