Nokia Gains from Huawei's Losses

06/04/2019 5:00 am EST

Focus: TELECOM

Jason Williams

Assistant Editor, Wealth Daily

President Trump issued an executive order banning U.S. telecoms from installing foreign-made equipment that could threaten national security. And that was directed right at Huawei, notes Jason Williams, contributing editor to The Wealth Advisory.

This is way better for Nokia (NOK) than anyone else seems to realize. Nokia and its rival, Ericsson (ERIC), have been seen as the biggest benefactors of Huawei’s loss of business.

But it’s really Nokia that’s got the capability to pick up all that extra slack as the world progresses to 5G wireless. You see, Nokia is the only end-to-end 5G provider with global coverage. It’s already locked down its spot in the U.S. market through a major deal with T-Mobile (TMUS).

And the only country that’s never going to ban Huawei — China — is already Nokia territory thanks to another major deal to build out the network at China Mobile (CHL).

That’s the two biggest markets in the world. And Nokia had a strong foothold before Huawei’s troubles escalated. Now, it’ll keep on track in China and start to get more major contracts across the globe. And with Nokia trading right around $5, there’s a good case to make that the shares will double over the next year or so.

The stock has been flat for years because Nokia hasn’t been able to show consistent sales growth and positive earnings. But investors haven’t been paying attention to the reason for the continuing loss and the stagnant revenue figures.

The company has been dumping money into R&D for the past three years. Its focus was on the long-term future, not the short-term numbers.

In 2016, Nokia boosted spending on research and development by 240% to over $5.5 billion. And it kept up that spending through 2018. Now, the company has a cost savings program in place that should result in nearly $1 billion in extra cash from operations this year. And, last quarter, it accelerated sales growth by nearly 10%.

Analysts are starting to take notice as well. They’re expecting to see double-digit growth next quarter. And they’ve revised expectations up more than 14% this month.

I highly recommend adding shares before the rest of the market picks up on the potential brewing at Nokia. I can see it getting up into the $9–$10 range once the company starts reporting all the contracts it’s picking up from Huawei.

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