There’s an old adage that stocks trading under $10 do so for a reason. This quip is designed to suggest that the company isn’t doing a good job. It suggests that the stock is trading in the single digits because it’s a laggard in its industry, or it was once a great company, but now it’s pretty much worthless. This is on the list of the dumbest things I’ve ever heard.
Do these people ever consider that the number of shares outstanding have something to do with the price? Or maybe the board of directors believes in the benefits of splitting the stock compared to Warren Buffett, who oppose the practice.
I don’t care if there are too many shares. Do I care if the prime rib is cut up into ten pieces or 50? Not if I’m hungry for what I want. Today, I want to talk to you about a company that’s been on my radar for a few weeks. It’s trading for under $6, and it’s starting to look like an exciting turnaround story.
Three Catalysts for Nokia Stock
I’m paying close attention to Nokia Corporation (NYSE:NOK). It’s been quite some time since Nokia was a name that dominated the market share in the United States. Back in 2004, the company was the world’s largest cell phone manufacturer. Today’s it’s somewhere around 15th, according to Gizmo China. Its global market share in Q4 2020 was less than 1%.
Now that might not seem too promising. But remember that times change quickly. And in a post-pandemic world, I’m paying close attention to what is happening around the globe. As I’ve noted recently, U.S. cell phone manufacturers and other technology firms face significant pressure in China.
This is part of an ongoing technology battle between Washington and Beijing. If this problematic trend accelerates, it appears that U.S. semiconductor and mobile providers could lose a lot of market share in the Chinese economy. And that opens the door for a company like Nokia, which is based in Finland.
New Trends, New Opportunities
So, let’s look at the key trends that make the Nokia stock an interesting one to consider. First, Nokia has shown stronger margins in two areas that most people are ignoring. Second, don’t get too overly focused on just cell phones. Nokia is a leader in network infrastructure for mobile networking. And with the ongoing deployment of 5G across the globe, look for Nokia to successfully deploy new networks worldwide.
Second, its valuations are absurdly low. This company trades at a price/sales of 1.19x while the rest of the industry averages 4.89x. As a result, its price to EV/EBITDA is well below the industry norm. And it is currently generating better profit margins than its industry rivals.
Yet here it is. Trading under $6.00. Of course, following the announcement that the firm plans to upwardly revise its guidance, shares popped 9.5% yesterday. Look for it to break $6.00 soon.
Finally, pay very close attention to the ongoing ban against Chinese phone giant Huawei worldwide while its rival Ericsson struggles to engage its operations in China. Suppose China looks for new developers of 5G within its borders, and the company has accelerated its market share in other nations where Huawei is losing customers. In that case, Nokia might just be in a sweet spot.
Nokia stock looks like it can gather the steam to gain another 10% or more in the months ahead. Should it continue to build cash flow while isolating itself from U.S. inflationary pressures, Nokia just might become a highly touted value stock.
Given that options on Nokia are also cheap, with low implied volatility in a liquid chain, investors might want to use leverage as a way to control shares with “In the Money” calls in the months ahead. I’ll talk more about what that type of leverage looks like soon.