Long-Term Investors Can Consider Investing in Nokia
Apple’s (NASDAQ:AAPL) iPhone event on Oct. 13 has made many investors more interested in the shares of companies that are involved in the 5G space. One such name is Nokia stock.
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Recent research by Nokia and Nokia Bell Labs determined that “5G-enabled industries have the potential to add $8 trillion to global GDP by 2030, as COVID-19 accelerates medium and long-term digital investment and value creation… Companies at an advanced level of 5G adoption were the only group to experience a net increase in productivity (+10%) following COVID-19, and the only group able to maintain or increase customer engagement during the pandemic.”
The report continues, “across 8 economies – Australia, Germany, Finland, Japan, Saudi Arabia, South Korea, the UK and the US – 50% of companies are at the midway level on 5G readiness, between initial planning, trials and deployment, compared to just 7% that are classed as 5G mature.”
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Now investors may wonder if they should buy the shares of Nokia, one of the companies that is leading the global deployment of 5G networks. The company is expected to report earnings at the end of October. Between now and then, Nokia stock may be choppy, especially given the increased volatility levels of the stock market during this busy earnings season. However, long-term investors may regard dips by Nokia as a good opportunity to buy its shares. Here’s why.
Nokia’s Q2 Results
Finland-based Nokia makes telecom-grade networking equipment. In 2013, it sold its fading mobile-phone business to Microsoft (NASDAQ:MSFT). Then management changed course, re-positioning the company as a networking firm, and, more recently, as a 5G-equipment business.
The company released its Q2 results in late July. Last quarter, Nokia’s sales dropped 11% year-over-year to 5.09 billion euros. On the other hand, its profit, excluding certain items, came in at 316 million euros, compared to 258 million euros during the same period a year earlier. Investors were pleased with Nokia’s cash flow and profitability.
Over the past several quarters, Nokia has been increasing its large-scale capital investments, particularly in 5G networking. Its most important clients are communication service providers. The company has signed several important deals to introduce 5G networks in a number of countries.
For instance, in late September, it signed a major 5G equipment agreement with BT (OTCMKTS:BTGOF), the U.K.’s biggest telecom company. In October, Verizon Communications (NYSE:VZ) announced it had chosen Nokia to provide private 5G networks outside the U.S., mainly in Europe and the Asia-Pacific. NASA has also recently selected Nokia as a partner to build the first LTE/4G communications system on the moon.
Analysts believe that, going forward, the proliferation of 5G technology will likely drive Nokia’s growth. Their median price target on Nokia stock is $5.27. The shares’ forward price-earnings and price-sales ratios stand at 12.94 and 0.89, respectively. More value investors may begin to buy the shares.
The Bottom Line on Nokia Stock
In recent quarters, Nokia’s management has put more emphasis on getting 5G contracts. Its recent 5G wins have shown that those efforts are beginning to pay off.
I believe that Nokia stock price will likely go over $5 in the coming weeks, and it could possibly go even higher than that. Therefore, long-term investors should consider buying it around its current levels. Meanwhile, the company could even become a takeover target.
Alternatively, those investors who are interested in 5G names but do not want to buy the stock may consider purchasing the shares of an exchange-traded fund (ETF) that owns the company. Examples of such funds include the Defiance 5G Next Gen Connectivity ETF (NYSE:FIVG), the First Trust IndXX NextG ETF (NASDAQ:NXTG), and the Defiance Quantum ETF (NYSE:QTUM).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.
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