Advisors Ring up Nokia

01/24/2003 12:00 am EST


John Dessauer

President, John Dessauer Investments, Inc.

"Frank Nuovo, Nokia's head designer, has much to do with propelling Nokia to the top of the mobile-phone world," notes Forbes . "What was once a bulky collection of electronic components and plastic has in the last few years become a fashion accessory for the image conscious." At the ultimate extreme, Nokia offshoot, Vertu, offers precious metal and jeweled versions (to customers such as Madonna) that cost up to $19,450. Here, two leading advisors review Nokia’s prospects.

Kevin Gooley of Standard & Poor’s The Outlook says, "In a market where phones are increasingly becoming a commodity, Nokia (NOK NYSE) has established a powerful brand image. It has become the industry benchmark for handset design, primarily due to its philosophy that handsets are a stylish fashion accessory rather than a mere communication tool. Its focus on developing handsets that appeal to the mass market has enabled Nokia to predict and satisfy the market's needs and preferences ahead of the competition.

"At a price-to-earnings multiple of about 20 times our 2003 earnings-per-share estimate of 81 cents, Nokia is trading near its lowest valuation in more than five years. In relation to sales, the shares are trading at under 2.6 times our 2003 estimate, above the industry average. However, we believe this premium is warranted given Nokia's industry-leading profit margins, which are roughly three times the average of its industry peers. We at S&P have assigned Nokia our highest 5-star buy ranking, and view it as a core holding for investors who want exposure to an improving wireless-handset market."

"Nokia is in the best position of any company in the telecom industry," says John Dessauer, editor of John Dessauer’s Investor's World. "Nokia is the world leader in the design and efficient manufacture of hand-held cellular phones. It is also a cash-generating machine. Nokia has $7.3 billion in cash, net of debt, and has been generating $1 billion a quarter from operations. No one expects a quick return to sales growth rates of a few years ago, but a growing replacement market and new customers means some growth in the years ahead. Nokia is gaining market share and expanding profit margins. Earnings are estimated at $0.80 for 2002 and $0.87 in 2003. Given the company’s excellent performance, strong balance sheet and growing cash hoard, we believe the stock should rise to $25."

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