Nokia: A $3 Bargain On Mobile Phone Hyper Growth

| About: Nokia Corporation (NOK)

The bad news for Nokia Corporation (NYSE:NOK) right now is that its earnings are near all-time lows, and it has lost its position as the number one mobile phone manufacturer in the world. The end result is that its stock price is down by almost 66% from its 52-week high. The good news is that Nokia's stock began to rally near the end of July, and this rally will kick in again in the very near future.

There is no reason why this company's stock should have gone below $2. The company has over $12 billion in cash and carries one of the most admired brand names in the world, the company should not be trading at a level that makes one think bankruptcy is on the horizon.

Nokia has received some good news, and its future looks much brighter now. The biggest problem that Nokia had was that after it abandoned its Symbian operating system in favor of Microsoft's (NASDAQ:MSFT) Window operating system, it was unable to compete against competitors like Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF) in the competitive smartphone market. But recent news has come out that makes it appear that Nokia may once again become a competitor in the smartphone market.

On July 19, shares of Nokia rose 8% higher after the company announced it had sold 4 million new Lumia smartphones running Windows in the second quarter, more than analysts had expected, and double its sales in the first quarter. News that the Lumia window phones were increasing in popularity was the spark that pushed Nokia's stock price higher. Microsoft plans to aggressively promote the release of its Windows 8 operating system. That will help to enhance the release of Lumia Windows 8 phones through Verizon (NYSE:VZ), AT&T (NYSE:T), and T-Mobile.

Nokia recently announced the release of two new Lumia phones that will be the first to feature the Windows Phone 8 operating system. The Lumia 920 and 820 look very nice and have received a good amount of praise. They both run Windows Phone 8, which features a fully customizable and intuitive start screen that appears user-friendly. The company claims that screens on the phones have the fastest refresh rate of any phone on the market, and the PureView camera is loaded with features. Indeed, the camera could prove to be a major differentiating factor (daily cell phone photos taken have surpassed daily digital camera photos taken in 2012). The augmented reality functionality and native navigation system also represent major improvements on some of the most-often used smart phone features. The Lumia 820 is a midrange device and is distributed through AT&T and T-Mobile. The Lumia 920 is a high end handset distributed by AT&T.

There has been more good news for Nokia - it was announced on August 24th that Apple had won its patent infringement lawsuit against Samsung. This is good news for Nokia because it could benefit if Apple wins its injunction aimed at preventing some of Samsung's devices from being sold in the U.S. If the court prohibits Samsung from selling handsets in the U.S., Nokia will face less competition as it releases its new Windows 8 smartphones. There is also the possibility that Samsung which supplies parts that are used in Apples iPhones and iPads will retaliate by not providing the supplies that Apple needs to produce its products. There were reports of shortages of the new Apple iPhone 5. This would further reduce competition when Nokia's releases its new Windows 8 smartphones. The timing of these legal actions should help boost Nokia's position in the smartphone market.

Furthermore, not all phones are smart phones, and it is easy to forget that most of the cell phone owners in the world do not yet possess even a 3G device, much less a 4G. The basic phone market is actually Nokia's most important market. Nokia's basic phones - the Asha line - have sold very well in the United States and have, more importantly, made serious headway in the Chinese and Indian markets, where consumers spend less money on phones. This success in the Indian and Chinese market will continue to prove fruitful and remain an important source of revenue for the company.

There has been much positive press on the topic of the patent portfolio for Nokia, and there are a number of interesting features. Nokia holds about 18.9 percent of all the essential patents for 4G/LTE functionality, and 4G is still in its infancy in respect to the worldwide market. The company has a portfolio of patents with an average lifespan of 13.8 years - a positive given the fact that it presently receives about $615 million yearly to license them. The estimated present value of the patent portfolio ranges between $3.1 billion and $6 billion, depending on the analyst. In the worst case scenario, the patent portfolio stands to be a significant store of cash. Nokia's mapping patents, which were essentially acquired with its $8 billion NAVTEQ purchase in the early 2000s, are finally being fully exploited in the new smartphones.

Nokia is a good buy. It is the second largest manufacturer of cell phones in the world. Additionally, unlike PC companies that are suffering from sluggish sales growth, Nokia is in a market with excellent growing trends. There were more smartphones sold in 2011 than PCs, the first year ever in which that was the case. Mobile devices are growing at a very fast rate, and Nokia is prepared to capture its share of the market. At its present value, Nokia is much undervalued. Nokia will be a good long-term investment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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