Nokia Has Momentum Early in 2020, but Is It a Buy?
As I write this late on Jan. 2, Nokia (NYSE:NOK) is having a good day on the markets. NOK stock was up almost 5% on the day. More importantly, Nokia stock gained 6% in December, ringing in the New Year in style. Can it keep up its momentum?
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Although I’m on record as being against buying NOK stock if it doesn’t pay a dividend, I do think that the skepticism surrounding the Finnish maker of telecom equipment is starting to lift, and that should result in some more optimistic projections from analysts in 2020.
The question is whether its December momentum makes it a buy early in 2020.
Commentary Getting More Bullish
InvestorPlace contributors like me have generally been quite bearish about Nokia’s prospects throughout most of 2019. Things began to change in late December, with several prognosticators turning bullish.
My Canadian colleague, Brad Moon, wrote on the final day of 2019 that 2020 could be a big year for Nokia. Brad knows a thing or two about electronics; his comments have peaked my interest.
“The past 10 years have seen Nokia battered, and it has become arguably the biggest casualty of the smartphone era. It goes into 2020 with its name once again on smartphones and retro feature phones, a strong patent portfolio, and a networking business poised to profit in a big way from the 5G rollout,” Brad wrote on Dec. 31.
“Barring any major miscalculations, look for the Finnish company to once again begin climbing that Fortune Global 500 list.”
Sometimes, given a stock price less than $4, we investors forget that Nokia is still the 466th-ranked company on the Fortune Global 500 list, with almost $27 billion in annual revenues and $45 billion in assets. It still is a massive company with approximately 103,000 employees worldwide.
Yes, it doesn’t generate operating profits on an International Financial Reporting Standards (IFRS) basis; it lost 318 million euros in the first nine months of 2019. However, on a non-IFRS basis, its Q1-Q3 operating profit was 869 million euros, down 18% from a year earlier, but positive nonetheless.
The Altman Z-Score
I haven’t done an Altman Z-Score for Nokia. Anything less than 1.81 suggests there is a reasonable probability of going bankrupt within the next 24 months.
According to Gurufocus.com, Nokia’s current Altman Z-Score is 1.15, which suggests it is in financial distress. By comparison, Nokia’s best Z-score over the past 10 years is 21.69, seven times the minimum score needed to be considered safe from bankruptcy.
The Z-Score isn’t perfect, and it can change on a dime based on an improving or deteriorating financial situation. It’s best to consider the changes from quarter to quarter.
In 2020, should its 5G business take off as Brad suggests, NOK will quickly move into the safe zone. Nonetheless, I think it’s important to realize that despite having $45 billion in total assets, it is still far from being a perfect investment.
Is NOK Stock a Buy?
As I’ve stated in past articles, if you are interested in betting on 5G through a single stock, there are much better and less risky alternatives.
InvestorPlace’s Will Healy recently recommended five 5G stocks to bet on, one of which was Nokia. For my money, I’d go with Apple (NASDAQ:AAPL) or Intel (NASDAQ:INTC) before I’d bet on any of the other three. But that’s a subject for another day.
Although I wouldn’t recommend Nokia stock to anyone who’s saving for retirement or their kid’s education, I do feel the 5G prospects continue to titillate speculative investors.
If you can afford to lose it all, the recent momentum would suggest now is the time to take a flyer on Nokia stock.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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