Wireless Is Forever
10/07/2008 1:00 pm EST
Nikhil Hutheesing, editor of Forbes Wireless Stock Watch, says wireless stocks will survive the market meltdown, and he likes Nokia's prospects.
The incredible volatility in the stock market has left many people scratching their heads. The question many investors are now wondering is whether the market actually hit bottom. I wouldn't be too sure that it has. As a result, I'd wait for an indication that the market has stabilized before adding shares to your portfolio.
While it's true that many wireless businesses are likely to feel the pinch of a slower economy as consumers spend less on cellular phones and service providers are slower to upgrade their systems, wireless has become a core part of our daily lives. It is essential to corporations who depend on the technology for communications and data transfer.
As a result, I believe that the wireless industry will continue to grow-albeit perhaps at a slower pace. [And] while I think there will be some squeeze on the manufacturers and vendors of handsets, I think they will be largely spared from budget cuts. In addition, vendors today tend to have comfortable cash on hand, as well as positive cash flow.
Shares of Nokia (closed Monday below $17, 60% off its 52-week high.) At this level, the stock looks very cheap. Nokia (NYSE: NOK), a Finnish manufacturer of cell phones, holds the greatest market share of any phone manufacturer in the world. And it hardly has a presence in the US.
Nokia has been quickly expanding its market and recently acquired a number of companies including Symbian Ltd and Trolltech-allowing it to develop its Linux environment.
There is a lot of excitement around Nokia right now as the company prepares to unveil its iPhone killer. On October 2nd, Nokia will show its first touch-screen phone, the Tube, at a media event in London. The plan is to sell it a price cheaper than Apple's iPhone to tap into a higher-volume market. There could be great demand for this phone worldwide, but particularly in emerging markets such as India.
Nokia is also in good financial condition. The company generated about $10 billion of free cash flow in 2007 and was paying less than eight times free cash flow (if you strip out cash) for the business that has a return on capital in the mid-30% range.
The stock has been down recently (even before the recent financial crisis) because of concern about its product line-up and competition from Apple (Nasdaq: AAPL) and Research in Motion (Nasdaq: RIMM). But it's likely that the company will announce some new phones later this year. In addition, Nokia may work with Google's new Android operating system, incorporating the software into its own products.
Another enormous opportunity? The US. While our economy is struggling-today, only a fraction of Nokia's sales comes from the US. When the company eventually turns its focus to this market, sales should pick up further.Subscribe to Forbes Wireless Stock Watch here.