Saturday, February 12, 2011

Nokia. How can the stock markets get it so wrong?

Emotion not logic often drives stock markets around the world. Friday's plunge in Nokia's stock price of $1.52 per share to take it down 13.97% to $9.36 per share is a classis example. Wednesday evening Nokia closed at a recent high of $11.69 per share.

What caused the plunge? Merely an announcement that Nokia's smartphones would soon be supporting Windows Mobile 7 and that a strategic alliance between Nokia and Microsoft would be ready to go to "War" with Apple and Google for mobile device market share.

Some industry pundits were astonished that Nokia hadn't gone the open source route and adopted the Android operating system. But that's been done by other device manufacturers. Business hasn't fully adopted Android and actual standards have yet to be established as the Android operating system seems plagued by fragmentation through several different manufacturing paths to the consumer.

Nokia chose to partner with the operating systems manufacturer who won the PC Wars and has gotten out of the gate late with it's latest mobile platform. Historically, Micrsoft has stumbled in other markets only to recover and eventually dominate after a period of time. Microsoft Word, Internet Explorer, Windows, are just some examples of products that did not start off as a market leader but soon became dominant thanks to the Microsoft brand.

Nokia's manufacturing economies of scale are still there, they are the most experienced smart phone manufacturer out there and while they may have gotten their nose bloodied by Apple, RIM and Android lately, they just called in the biggest brother possible to help them out in this fight!

Nokia is still profitable with earnings of 68 cents per share and a P/E of just 13.78. Nokia pays out a dividend of 46 cents per share for a return of 4.20% which isn't bad for a high tech stock. Since Elop's arrival manufacturing has become more efficient and costs have come under vigorous control.

Rather than doom and gloom shouldn't investors look at this move as a big plus? Wouldn't Nokia be the first device manufacturer acquired if Microsoft wants to get into this space? Last time I checked buyouts are usually done at a market premium not a market discount.

Willing to bet against Microsoft? Just keep selling your Nokia shares if you're a open source fanatic. Smart investors are seeing your knee-jerk, short-sighted sell response as a buying opportunity. Within a year or less Nokia's stock price will be back where it belongs at $18 - $20 a share or acquired at a premium of around $25 per share.

Just remember you heard it here first!

James Gingerich