Buy Nokia On This Dip

| About: Nokia Corporation (NOK)
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With the recent surge in Sony (NYSE:SNE) on the back of the falling yen, which I wrote would happen back about 6 weeks ago, and with the rise in BlackBerry (BBRY), Hewlett-Packard (HPQ), and Dell (DELL) at the same time as Apple (NASDAQ:AAPL) has been crashing, investors have been bombarded with news from all fronts in the consumer electronics industry and likely have forgotten about the stock that started this entire trend: Nokia (NYSE:NOK). Over the past few weeks Nokia has quietly pulled back from highs around $4.70 about a month ago.

I believe now is the time to pound the table on Nokia again. The reason is threefold:

(1) Continued improvement in Nokia Siemens Network

(2) Partnership with China Mobile

(3) Roll out of tablets

(1) Continued improvement in Nokia Siemens Network

Did you happen to catch those numbers out of NSN? NSN is fast emerging as the leader in the ongoing LTE transition around the world. Q4 results in this division were very impressive: all time high non-IFRS operating margin of 14.4%, net sales of $5.3 billion, 14% higher than Q3 2012. In addition NSN reported they are now targeting even more than the $1.3 billion in cost reductions by the end of 2013. On a standalone basis this division could generate greater than $2.7 billion in profits. Think about that for a second when comparing it to the entire company's market cap of $14 billion.

(2) Partnership With China Mobile

China Mobile (NYSE:CHL) recently announced that it is going to heavily subsidize the Lumia 920T phones. The purchase price after subsidies is basically $0 vs. a purchase price of roughly $700 for the iPhone, which isn't subsidized. In a country where the average annual income is around $6,000, this is a big deal.

The partnership with China Mobile has gotten off to a rough start thanks to supply issues. Bloomberg reported that while 90,000 Lumia 920T's were ordered, only 30,000 were able to be shipped. Nokia did, however, prepare investors for this when it mentioned in January that they were having some supply issues.

For investors of NOK the bigger issue is they are now partners of China Mobile, which boasts 700 million subscribers. That is potentially a very lucrative deal for the foreseeable future. Worrying about minor hiccups in the road right now could cause people to miss out on the longer-term picture.

(3) Roll Out of Tablets

While this is still speculation, rumors have been flying about Nokia tablets. And it makes sense for them to consider this market. After all, based on a recent Forrester research report, some 200 million works want Windows 8 tablets. In their report, Forrester surveyed 10,000 enterprise employees in 16 different countries and concluded that 32% of them want to use a Windows tablet for work.

While it is believed that Nokia will not introduce a tablet at the Mobile World Congress later this month, CEO Stephen Elop was quoted recently as saying:

"We haven't announced tablets at this point, but it is something we are clearly looking at very closely," he told the newspaper. "We are studying very closely the market right now as Microsoft has introduced the Surface tablet, so we are trying to learn from that and understand what the right way to participate would be and at what point in time."

Being a preferred partner with Microsoft means that Nokia should be able to garner a good chunk of the tablet market when they do ultimately roll one out.


No trade comes without risks of course. Nokia is still losing money overall. They recently cut their dividend in what may be a lack of confidence in their ability to make sustainable profits. And competition in the consumer electronics market is intense. Their market share has dropped significantly in the mobile phone market over the past 5 years and efforts to roll out new products could all be for naught.

With the recent pullback in the stock I think it's wise to pick up some shares of Nokia. With recent developments in Nokia Siemens Network alone, I think the company can easily get to $5 per share. As with any trade I always recommend keeping a mental stop price in mind. I typically will cut any position loose if it is down 8% unless I'm building a position for a longer term holding. Nokia seems to have support in the $3.7ish area and then again in the $3.4ish area. I would buy your first piece here just above the $3.7 area and add in the $3.4-$3.5 area for an average of $3.6 if it does indeed drop. That way a drop below the $3.4 level would still keep you above the 8% mental stop limit and keep you in the trade.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NOK over 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.