NOKIA IS THE WORLD'S leading seller of mobile phones, and operates in an industry that is still growing about 20% a year. It has the sixth most recognizable brand, keeping company with worldwide icons such as Coca-Cola and Microsoft. It enjoys the highest gross margins in the business, generates tons of cash and is virtually debt-free. So, how come the stock has gone nowhere for the past two years? Simply put, Wall Street worries that Nokia isn't cool anymore....
Nokia's aggressive forays into countries such as China and India will bring huge payoffs in the form of sales and, eventually, higher margins, as new users trade up. More immediately, Nokia is rolling out a fresh batch of promising higher-end products -- just in time for the holiday-shopping season.
Earlier this month at its "mobility" trade show in Spain, Nokia unveiled an impressive array of "smart phones" -- combination phone, e-mail, Web-surfing devices outfitted with industry-leading color displays and quality digital cameras. That was preceded by a launch of new multi-media phones aimed at digital-game players, and a new portfolio of everyday phones -- including, at last, clamshell designs.
Its top clamshell model for the U.S., the 6101, isn't especially advanced compared with rivals' models, but it's a big step forward for Nokia and already is generating strong sales..
"They are clawing their way back and not getting any credit for it," says Paul Sagawa, telecom analyst at Sanford C. Bernstein. He rates Nokia's American depository receipts a Outperform with a $28 target, up from about $17 now. Some other fans see more modest gains of closer to 20%. Either way, the shares do look like a bargain, changing hands at 15.7 times estimated earnings for 2006. That's well above the multiple of 18.6 for Motorola.
Barron's has long been a fan of Nokia ("Nokia Calling," Sept. 29, 2003). We're also bullish on Motorola, whose shares are up 15% since we highlighted the company's prospects last summer. If you liked Motorola then, you have to like Nokia now, bulls maintain. And that's not taking anything away from Motorola: As the cellphone industry consolidates, there is easily room at the top for two at the expense of others.
NOK 1-year chart: