Turnaround Expert Calls on Nokia

03/31/2015 10:00 am EST

Focus: GLOBAL

George Putnam

Editor, The Turnaround Letter

This Finland-based company—our latest turnaround selection—is one of the largest global producers of telecommunications equipment, explains George Putnam, editor of The Turnaround Letter.

Nokia (NOK) was a Wall Street darling in the late-1990s, with the shares trading as high as $56 in early 2000. But over the following decade, Nokia gradually fell behind other cell phone makers, and by 2012, the stock had dropped below $3.

Then in 2013 and early 2014, the company transformed itself once again by selling its cell phone handset operations to Microsoft and buying out its partner Siemens’ interest in a network equipment joint venture.

Nokia now has three main lines of business: telecom network equipment, a specialized mapping and location intelligence business known as HERE, and technology licensing.

Now that Nokia has off-loaded its money-losing cell phone handset business, it can concentrate on increasing the profitability of its three remaining businesses, each of which has good potential.

Nokia is taking advantage of its strong brand name in certain parts of the world to tiptoe back into the consumer device market. It has a particularly strong position in the US, Asia (outside of China), and Latin America.

The HERE mapping business has more than 50% of the market in imbedded mapping systems for autos and that market is growing rapidly. It can also move more aggressively to monetize the value in its patents through new licensing deals.

The balance sheet is very solid, with net cash (cash minus debt) of more than 5 billion euros at the end of 2014. In addition, the weak euro should give Nokia a pricing advantage in many of its markets.

The company has recently launched a new Android-based tablet product in Asia, which has been very enthusiastically received.

Finally, the company has just instituted a small regular dividend and we could see that grow over time as profitability improves. We believe that profits are on the rebound and we recommend buying Nokia up to $12.

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