Nokia Contrarians Unite!
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Nokia’s (NYSE: NOK) recent plunge must have at least some contrarian investors absolutely salivating. Why? Because it shouldn’t be nearly the surprise it's become. The shift by management emphasizing the Lumia phone internationally and in North America was going to impact earnings in the short run -- how couldn't it? Nothing earth-shattering about that, what new product rollout – particularly into a market as aggressive as smartphones – isn’t going to impact financials in the near-term?
Sure, Apple aficionados will roll their eyes at the idea but Nokia is trying to reinvent itself, not introduce upgrades on existing, well-entrenched techno gadgets. And that is a huge differentiation. Daytraders may find themselves attracted to Nokia – as they are with most any stock that swings so wildly. But contrarian investors recognize turnarounds take time, and that’s certainly going to be the case with Nokia. Another potential feather in the contrarian investor’s cap? The stock is currently trading at levels not seen in 15 years. That’s enough to scare the you-know-what out of most investors – and it has – but not so much for those who make a living on betting against the market.
With less than a 1% market share in the U.S. and a rollout of the new Lumia phone only a few days old domestically, it’s not overly surprising that management has forecast sales below analyst estimates. It’s even more likely management got caught up in their own excitement and overestimated the time it will take to make a dent, and how quickly consumers would jump on board. In other words, in their zeal they (management) brought much of this on themselves - it happens.
Apple’s (NASDAQ: AAPL) iPhone and those running on Google’s (NASDAQ: GOOG) Android OS are well entrenched – no news there. The bigger problem in the near term was Nokia’s quick rollout. Initially this was seen as a coup – “look at us, our production and delivery processes are SO much better now” – but the recently announced data glitch put a kibosh on that kind of talk. Management’s fault? Yeah. In their haste to impress the ball was dropped.
However the quick announcement and resolution of the problem – the fix will be available in a few days -- though costly was, if nothing else, forthright and honest. A half-full approach? Undoubtedly, but that’s exactly the kind of thing contrarian investors will take into account when making their investment decisions.
With all that’s happened of late – downward profit and sales revisions, phone glitch, etc. – it still really boils down to this – believing in Nokia and Microsoft’s (NASDAQ: MSFT) Mango OS technology, the quality of the Lumia phone itself, and management’s ability to stay focused on the end prize, even while dealing with body blows along the way.
Having read multiple financial statements and a host of announcements from the company, I’m still inclined to believe. Glitch aside the Lumia phone’s technology has been widely praised in and outside the industry. They still hold the largest LTE market in the industry, cost cutting efforts are in place (EUR 1 billion by 2013 is the target), let’s not forget they're sitting on nearly EUR 11.5 billion in cash and they pay a 6.1% dividend. That's all (potentially) good, but for contrarians and other long-term investors it’s still pretty simple – betting on Lumia and management.
The investment opinions included are just that, opinions. Investing involves risk, as you well know, so consider your decisions wisely. Tim holds no position in the securities mentioned in this article.