When someone mentions Nokia Oyj (ADR) (NYSE:NOK), the broad response from the crowd isn’t positive. If you’re a consumer, you probably think of those old Nokia phones that never really gained any traction. If you’re an investor, you’ll recall that Nokia stock has fallen from $40 to $6 over the past decade.
In other words, to most people, this is an antiquated technology company with a crumbling stock price that reflects the company’s crumbling growth prospects.
But over the next few years, that thesis couldn’t be farther from the truth.
Indeed, over the next two years, NOK stock could be one of the bigger winners in the technology sector. Here’s why.
Nokia, 5G, & IoT
Nokia has fundamentally transformed itself from a company that failed at making phones to a company with a technology portfolio that is positioned for huge success over the next several years.
That old phone business everyone still affiliates with Nokia? It’s gone. Nokia sold its to dying phone business to Microsoft Corporation (NASDAQ:MSFT) back in 2014.
Now, Nokia stock represents a technology infrastructure company that is a pure-play on two huge forthcoming trends: 5G and the Internet-of-Things (IoT).
Broadly speaking, Nokia provides the equipment which is the technology underpinning data transfer and storage around the globe. As we all know, data is exploding thanks to the mainstream emergence of IoT.
Every device these days is seemingly “smart”, meaning every device is producing and transferring data. So long as this trend of more and more smart devices persists, demand for Nokia products should grow.
More critically, that demand is set to get a big boost soon. The 5G roll-out is coming, and that will be the catalyst for a massive broadband upgrade cycle globally.
Currently, Nokia is a leading player in the 4G/LTE broadband market, so the company will naturally be a big winner in this massive 5G upgrade cycle.
Moreover, Nokia just announced a big 5G win with China Mobile Ltd. (ADR) (NYSE:CHL). Partnering with a major Chinese telecom company for 5G roll-out is a big deal. China is really serious about deploying 5G technologies throughout its country.
So serious that they are expected to pump a ton of money (over $400 billion) into 5G mobile networks from 2020 to 2030.
In other words, Nokia signing a big deal with China Mobile for 5G roll-out thrusts Nokia into the middle of a massive, 10-year plus growth narrative.
All of these 5G related catalysts should start to materialize as soon as late 2018, and then go full-scale in 2019 and after.
Nokia is investing big in order to capture the full rewards of this massive upgrade cycle. Consequently, margins will be under pressure in 2018 and earnings won’t look so great.
But thereafter, margins are expected to zoom higher (from 10% operating margins in 2018 to 14% operating margins in 2020) alongside robust revenue growth. That combination should lead to powerful earnings growth.
Indeed, over the next five years, analysts are projecting roughly 17.5% earnings growth per year for Nokia. But NOK stock is trading at just 19-times forward earnings. That gives NOK stock a favorable price-to-earnings/growth (PEG) ratio of under 1.1.
Bottom Line on Nokia Stock
Forget the dead and gone phone business.
Nokia stock is a cheap stock with major growth catalysts on the horizon in the form of 5G deployment and the mainstream emergence of IoT.
That combination of low multiple and big growth should lead to NOK stock breaking out over the next two-plus years. Buying now before the big 5G catalysts emerge seems like the smart move.
As of this writing, Luke Lango was long NOK.
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