NOK: VALUE TRAP?

Anyone who has followed to market for the past few months have seen the demise of Nokia (NOK) and Research in Motion (RIMM) in the wake of growing competition from Android and Apple. To date Nokia is down nearly 40% and is sitting at a 13 year low! The task of trying to find a bottom for Nokia is an extremely difficult task to accomplish and can be similar to catching a falling knife.


NOK does still offer a few perks that warrants a second look before the stock is thrown into the dumpster. Let's take a look at some of the pros and cons before we throw Nokia in the trash:


Pros:
- 9.3% annual yield at current levels.
- P/E ration of 8.5.
- Price/Sales of .41.
- $16 Billion held in cash ($10 Billion in FCF)
- Largest telephone maker in the world.
- Technical indicators show it's oversold; 3 month RSI less than 8.
- FCF cost of 6


Cons:
- Increased competition in the smart phone market from AAPL and GOOG Androids.
- Losing significant market share; down almost 13% since 2007.
- Shrinking net margins.
- Decreasing revenue growth.


Conclusion:
The sentiment around NOK remains quite bearish from analysts and investors alike. The CEO, Stephen Elop, hasn't done much to quell any of the growing skepticism either. The company is experiencing shrinkage all across the board with decreasing revenue growth, net margins and market share. The fierce competition from smartphone giants AAPL and GOOG will continue to eat into market share in the near future. 


But the stock isn't necessarily dead in the water yet. The company pays a hefty dividend that is north of 9% at current prices. It trades for cheap multiples and still holds large amounts of cash in its coffers. Internationally, NOK might be losing market share to AAPL and GOOG in the smart phone market, but it still remains a significant player in providing phones to developing countries where not everyone there can afford or need a smartphone. The strategic partnership with Microsoft has also not proven to be extraordinarily successful to date. It remains to be seen whether the company can whether the storm. 


Recent speculation has made NOK a buy-out candidate; if NOK is not bought out outright then it remains a valuable company to be pieced off at premium prices. None of the speculation has proven to be true, but investors can expect to be rewarded handsomely if any of the rumors do come to fruition. 


Nokia still remains a bullish candidate. The Finnish company has been able to grown into an international giant over the past few decades while operating in the harsh tundra of Finland. If their strategic partnership with Microsoft proves to be a success and they are able to right the ship, expect to be rewarded substantially if you buy shares of Nokia at these prices. The dividend remains hefty - and has grown annually over time - and that should be an added bonus to the stock. NOK remains a buy and should be gobbled up at these prices.


I remain long and bullish on NOK.