Series 2 of 2: Is NOK a Buy or Sell in 2013? – Can the Firm Take 3rd Place?
Dividend Disappointment (Continuing from Series 1)
While Nokia’s move to eliminate its dividend has been hailed as a prudent move, it has certainly left shareholders extremely disappointed. NOK’s share price fell almost 5.5% on the Helsinki stock exchange shortly after the decision to cut dividends was announced. This decline is over and above the almost 50% decline in share value since Feb 2011, when the company embraced Windows Phone.
Skeptical shareholders might point to the fact that a dividend cut was not needed given that the company's cash balance rose to a whopping 4.4 billion Euros in Q4-2012. The reality is that, in order to maintain its 143-year unblemished distribution policy, the company would have had to dip into its cash war chest. That would have meant dishing out upwards of 750 million Euros from its cash reserves – a move that would have significantly weakened its ability to stage a meaningful comeback fight to claim third spot on the smart phone arena.
See Others: iPhone vs. Android – Two views on the winner!
The Search for Value (Valuation Analysis)
Dividends form a key component of total return to shareholders, and any omission (or suspension) of regular payouts could significantly impact shareholders' investment thesis in a company. With that in mind, let's take a closer look at the Total Return value proposition that NOK offers to its investors.
When comparing NOK, an assumed "Dividend Aristocrat", even against some non-dividend competitors, including Research In Motion (now Blackberry – NASDAQ: BBRY) and Apple, there's no doubt about where investors see greater potential for total returns.
The two stocks at the bottom of the Total Return heap, BBRY and NOK, face similar hurdles. Both are former darlings of their respective investor constituency but have fallen out of favor with their shareholder base.
And coincidentally, both are fighting for third place in the heavily dominated Android and iOS ecosystem, BBRY with its new BB10 OS, and NOK with its Windows Phone platform. The question is: Who will emerge first to claim the coveted 3rd place?
As of the time of this writing, NOK is trading within a 50-week range of $1.63 and $5.87. Earlier this year, the stock seemed to be on an upward track to breach its 200-day Simple Moving Average resistance line ($4.81). But, the pre-release and ultimate release of Q4-2012 financial results sent the stock back on a downward trajectory. Technical investors normally use a stock's moving averages (20-day, 50-day, 100-day, 200-day, etc.) to estimate the directional plot-range of the stock.
Investors would be wise to keep an eye on how the stock moves from here on. If it breaches support at the 20-day SMA ($3.45), the next milestone will be to watch if it falls below its 50-day SMA ($3.26). If that happens, the stock could test new lows and may even go into a free fall.
The Bottom Line
Given the assessment above, and the relative uncertainty of how Windows Phone and BB10 will face off, NOK would rate as a HOLD to MODERATE SELL. This decision may need to be revisited at the end of Q1-2013.
Market Correction Impact
MarketConsensus would like to caution investors on what we see as an imminent market correction. Market trend indicators are pointing to an overbought situation and a correction is a very real risk over the next 1-3 months. Investors should take this into consideration in their near term investing choices.
(By: Monty R. – MarketConsensus News Contributor)
Good luck in your investing,
MarketConsensus Stock Analysis Team
Enter your e-mail address on the “Never miss a post!” section on the top right of this page and receive articles as soon as they are posted.