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).

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