Murphy Rings Up Nokia

07/25/2003 12:00 am EST

Focus:

Michael Murphy

Former Editor, New World Investor

"We should have a great opportunity over the next couple of months to put our cash to work and be well positioned for the sustainable recovery I expect to start before the year is out," says Michael Murphy. In a Flash Bulletin to subscribers of his Technology Investing newsletter, Murphy suggests using weakness in Nokia to build positions.

"Nokia (NOK NYSE) recently announced in-line earnings on slightly soft revenues, but they guided for no growth in the current quarter and the stock was knocked down almost 20% in one day - to below my buy limit. Nokia said handset sales in units will be up 10% this quarter, but flat-to-down in terms of revenues due to lower-priced phones and the weak dollar. They've seen no pickup in Europe at all. Because they usually have a very strong fourth quarter due to holiday gift-giving, they are banking on an economic improvement soon to pull out the year.

"The stock shouldn't trade below $13, even in a market decline, so the risk/reward profile for new buys at current prices is very favorable. On the other hand, NOK probably won't move up too quickly as analysts had been looking for 23 cents in earnings in the current quarter and will now cut their outlooks and stay cautious until they hear the September quarter results in mid-October. With that in mind, NOK might not do much until October. However, almost all of the risk is out of the stock at this point, and Nokia will remain the dominant cell phone company (38% market share and growing) for years to come. If you don't own NOK, now's a good time to start building your position while it's under my $16 buy limit. Our target price remains $21 by the end of the year."

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