With Apple’s Fortune Declining, Is This the Time to Buy These Smartphone Makers?
Gayatri is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Apple’s (NASDAQ: AAPL) stock price has corrected quite a bit from its highs in the recent months. The stock price declined to low $500 levels in mid-November after making a high of ~$700 in mid-September. Although the stock has recovered some of its lost ground, the jury is still out on whether it is just a dead cat bounce or a sustainable recovery and a trend change.
Meanwhile, Apple's two closest mobile handset peers have done exceedingly well during this period. Research in Motion’s (NASDAQ: BBRY) stock price has gained 85%, while Nokia’s (NYSE: NOK) stock price has gained 50% from its September lows. This may be more than just a coincidence. Both of these handset makers have seen steady declines in their stock prices and business fundamentals since Apple’s iPhone launch in 2007. It has been 5 years now and there’s a good chance that the “wow” effect Apple’s iPhone brings to the consumer is fading. Maybe these two handset makers that have suffered at the hands of Apple will have a chance to strike back. Let’s have a look at these two companies.
Research in Motion: Betting on Blackberry 10
Research in Motion has received several analyst upgrades of late – the latest of which is from Goldman Sachs. Goldman Analyst Simona Jankowski upgraded the stock from neutral to buy, citing that Street expectations for BB10 are too low. Jankowski expects ASP lift thanks to BB10 and associated margin improvement will help RIM return to profitability in FY14 (Feb).
I believe RIM offers attractive risk/reward, given its significant cash holdings as well as positive early reviews of its features. However, if you are still skeptical about BB10’s prospects and need more visibility, Nokia may be a better option as early models of Nokia Lumia have actually gained good customer traction.
Nokia: Lumia continues to gain traction
Nokia is trading at 0.35x sales, leaving a little room for the downside. On the other hand, Nokia’s Lumia phones are witnessing good demands and can surprise on the upside. Nokia Lumia 920 is now the best-selling phone at AT&T, ahead of the Samsung Galaxy S III. In addition to focusing on handset business, the company is also capitalizing on other opportunities. For example, the company has recently started making its location-based services and maps available through apps on other platforms. On the one hand these steps open new sources of revenue, while on the other hand helps Nokia getter better consumer perception.
In addition, Nokia has an inherent advantage given its high market share in emerging markets like India. Smartphone subscriber growth is happening at a much faster rate in emerging markets compared to saturated and developed markets. Clearly Nokia can be a natural beneficiary of this trend if it can get its products right. A lot of sell side analysts are still bearish on the stock, overly focusing on cash burning rate. I believe they are missing the upside if Lumia continues to gain traction.
To sum up, I believe aggressive investors with high risk reward should consider taking positions in Nokia and Research in Motions. Both of these companies have product-specific catalysts in the form of the launch of Blackberry 10 and the Lumia 920 gaining traction. They are also trading at low price to sales ratios, skewing risk/rewards to the upside.
GayatriSharma has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!