Thursday, July 19, 2012

NOK Earnings Today (7/19)

“As we look ahead, we expect the launch of Windows 8 for PCs and tablets plus the launch of Windows Phone 8 to be a catalyst for Lumia,” Nokia CEO Stephen Elop.

Talk about all your eggs in one hopeful basket. There was no sign that they intended to develop an Android product in addition to Windows (maybe they are secretly just in case.) Anyway, it's just a wait and see game now with NOK. If they continue to disappoint over the quarters, their stock will sink and sink until it is trading at a safe discount. If anything, it's probably fairly valued at the present time. 

Thursday, July 12, 2012

More on Nokia and the Smartphone market

I am tracking Nokia because 1) I find this space interesting and 2) if it drops low enough it prices ($1-$1.25 my current thoughts), I believe it will be a solid buying opportunity.

Nokia's CEO, Stephen Elop, has been on board for less than two years. He worked formerly at Microsoft and is the one who made Nokia change its phone platform to one that supports Windows' mobile Operating System (OS). Fine, but why not create Android powered phones (51% US market share) as well? I don't know.

They believe Windows 8 will be a catalyst for their phone. If that catalysts disappoints, and sales and market share continue to evaporate, perhaps Mr. Elop will be booted, or Nokia will at least consider adopting Android in addition to Windows. 

Here's the real problem: at different times, I have heard various people say,

"I love Amazon." The forthcoming competitor, rumored to use Android as well. If they don't, I think they can be successful anyway; or perhaps start with Android and then switch to their own later. 
"I love Google." (Android is Google's OS.)
"I love Apple."

I have never heard anyone say, "I love Microsoft." That sentence sounds almost absurd. Moreover, I've often encountered Microsoft/Windows bashing, "Every time you use Internet Explorer [by Microsoft], God kills a kitten!" For younger generations, which phone they carry, more than anything else today, is the strongest, most external statement of one's identity-- superficial as it may be. Since it's about identity, the issue of brand, "I love Amazon/Google/Apple" reigns supreme. Religion and politics are fine, but the firmaments forbid you bring up iPhone versus Android at a dinner conversation. Android users are relatively agnostic towards device makers, Samsung, HTC, Motorola-- it's all about the OS. As such, I don't think there'd be any resistance in wedging Nokia into that list.

Given those deliberations, I don't think it would be wise for Nokia to switch to Android. Until they do, the stock price may continue to drop as a result of the repercussions of that sin of omission. As such, I am waiting patiently for an approach of my tentative price target range.

Added: At the end of the day, I'm looking to buy NOK-- I think it has much greater prospects than RIMM-- I just think more bad news can come its way, and depress its stock price, to make it a worthwhile risk/reward buy.

Monday, July 9, 2012

Called it! AMZN to create a smart phone

Here is an article about Amazon's plans to release a smartphone. I have been saying that for months and am happy to have been lucky enough to post it a couple weeks ago on this blog. Some articles have surfaced suggesting AMZN buy NOK (trading at 1.86 now) for its patent portfolio of 30,000 patents, from which NOK gets $600MM in royalties per year.

I was worried about what the news of an Amazon smartphone would do to NOK--which may likely be the cause of NOK's 10% drop in price over the last couple of days. Fortunately, that random variable with unclear timing is now out of the way.

More on this later-- I believe NOK can trade much lower than it currently is. Based on 2011's numbers, the company's "free cash flow" was $700MM, compared with $5.5B in 2010. Free cash flow is one measure of the company's true earnings, which can be used here as an alternative to earnings, since theirs are negative. Let's say the company can surely be around for 4-5 more years, that values it approx at $2.8-4.5B. The current market value of the company is $7.13B, so it would not be unreasonable for the stock to drop to about $1 per share.

Nokia also pays a hefty dividend of about $2B per year, which it has not altered. A slash to this would be another news item that can bring the stock down to attractive levels.

Saturday, July 7, 2012

Thursday, June 28, 2012

Nokia (NOK)

Currently trading at 2.12, I first looked at the stock with interest when it was at around 3.30.

The technical picture. 

There are two charts below. One is a weekly chart for perspective. The second is a daily chart with Darvas boxes; they are equal in percentage changes, not absolute values, because the chart is on a log scale. In each subsequent box, the stock price lost about 35% of it's value. Based on such a box and some rough approximations, the next low is between 1.87-1.97. I currently have a limit buy at 1.91, with a sum that I would be OK losing 100% if the stock goes to zero. The stock behaves well technically, often responding to horizontal support and resistance levels.

The fundamental picture.

Financial condition: Last year, it lost about 700MM in cash. It has enough cash reserves for a few more years, but that's meaningless if business doesn't pick up, or the stock is bought out. The company's debt is rated junk. It's a weakening financial condition, but not so much so that bankruptcy is inevitable.

Valuation is really low. Yahoo Finance statistics for it are down for the moment, so I cannot reproduce.

The story.

Nokia has lost a ton of market share to Apple and Android (an OS by Google) phones. It's phone OS is Windows, which has less than a 2% market share. The stock has been hit with a lot of bad news.

I believe Microsoft will support Nokia, as Microsoft wants to be a stronger player in the mobile space.  NOK does not have an exclusive partnership with MSFT, but I have come to consider that a good thing because the problem with Windows phones is a lack of awareness. If a huge player like Samsung began to more heavily promote its phones with Windows OS, it would create a lot more awareness of the product, and lead people to look at NOK's for comparison. The latter's phone has received positive reviews-- it just hasn't been marketed effectively.

I also believe that ever since Google launched Google Play-- it's online, cloud-based store for books, movies, and music-- Amazon needs to have its own phone to be competitive. Amazon already has the second most successful tablet on the market, the Kindle Fire. If it releases its own characteristically low-margin phone product, it may be a very strong competitor against Apple and Android, making it even tougher for Windows based phones. But who knows-- maybe AMZN will buy out NOK. 

The stock is dirt cheap and patents and intellectual property for phone related stuff are valued right now. As I said, I started eyeing it at $3.30, and have very patiently been waiting for it to drop. It's now pretty close to my target and entry point of $1.91.

Disclosure: I am not a profitable trader, nor have I never bought a stock before (ETFs only).