Don’t Buy the Nokia Sale Hype, Buy the Stock
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Rumors – gotta love ‘em. The latest in a relatively short line (so far at least) of recent scuttlebutt surrounding Lumia 900 smartphone maker Nokia (NYSE: NOK) was the “news” that Samsung was going to offer shareholders EUR4 a share to acquire the beleaguered company. That rumor took CEO Stephen Elop all of about 13 seconds to squash – and that was only because he was eating at the time and is too polite to talk with his mouth full.
The other, and even more baseless, rumor trolling around out there was Facebook (NASDAQ: FB) and Nokia would be a match made in heaven, and wouldn’t it be swell if they teamed up? From a 30,000 foot view there may be some intriguing possibilities for these two. But even the most cursory review beyond that should be enough to blow this one out of the water.
First and foremost Facebook needs to get their own house in order before trying to go all Google on us and match the recent closing of Google’s Motorola Mobility acquisition. Facebook CEO Mark Zuckerberg and crew must know they need to expand revenue lines – but there’s a right and a wrong time for everything and now's not the time for anything this big.
Contrary to popular belief Nokia’s partnership with Microsoft (NASDAQ: MSFT) and their operating system for the new and improved Lumia smartphone was not the end of Nokia’s mid and low-end phone sales. The ASHA Touch series of touch screen smartphones are essentially scaled down devices aimed specifically for younger, technically savvy consumers and have price points to match. Specifically targeted are folks that use their smartphones primarily for internet browsing, social networking and games. The exclusive arrangements Nokia announced last month with several key app download providers - including the ridiculously popular Angry Birds – comes pre-loaded for ASHA Touch users. It will be interesting to see how well received the new line is, particularly with what the company has planned for the release of new products later this year and early next.
But low end sales or no low end sales, Nokia’s survival continues to rely on Lumia sales – here and abroad. Mr. Elop and the team went all in and if the company can show even the slightest bump in sales trends the second half of 2012, shareholders will be pleasantly rewarded. Then there are plans for a couple of new product rollouts featuring the Windows 8 platform scheduled for the next six to 12 months. According to Nokia these will include a tablet by year-end and a smartphone-like product.
When Nokia hit $2.61 a share to kick off June the half-empty types had already started preparing the company’s eulogy. It’s too early to determine if the $2.61 share price last hit on June 4is actual resistance or an anomaly, but technical investors should keep an eye on that going forward. It didn’t take long for value seekers to jump in at those levels and even with today’s sell-off (there are those rumors again) the stock is well above where it was a week and half back.
With massive restructuring costs expected to continue it's not likely Nokia’s earnings releases will be pleasant the next couple of quarters. More telling than the wildly adjusted financials - and what investors should look for - will be Lumia sales trends and any news regarding the company’s Nokia Siemens Networks. Nokia Siemens is largely to blame for much of the overhead costs. Want to sell something Nokia? Find a way to shed the money-sapping Networks division and devote even more time and energy on Lumia.
Let’s not forget Nokia’s EUR10 billion in cash and nearly 9% dividend. Naysayers will point out the dividend along with poor operating cash flow will eat into reserves at a frightening pace – and that’s a legitimate concern particularly in the near-term. Proponents would argue with that kind of coin at hand there's more than ample time for Mr. Elop to engineer his turnaround plan.
Nokia is a risk, no doubt about it. But investors looking for a place to park the aggressive portion of their portfolio don’t need to bet on a Nokia buyout. With a book value about 15% higher than the share price and possible technical support on the low end, Nokia warrants a look on its own merits.
timbrugger has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook, Google, and Microsoft. Motley Fool newsletter services recommend Google, Microsoft, and Nokia. 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.If you have questions about this post or the Fool’s blog network, click here for information.