Is Nokia (NYSE:NOK) stock still a buy near $6.50?

- May 30, 2017

Since NOK stock bottomed in November, BNL Finance has regularly called Nokia Oyi (ADR) (NYSE:NOK) one of the market’s best long-term investment opportunities. The combination of Nokia and Alcatel-Lucent creates the most diversified, complete telecom equipment company worldwide.

Prior to the merger, Nokia was a company that competed more so with Ericsson (NASDAQ:ERIC), and Alcatel-Lucent competed with Cisco Systems (NASDAQ:CSCO). Collectively with over $25 billion in annual revenue, Nokia and Alcatel-Lucent are still significantly smaller than Cisco Systems by total revenue. However, their collective technology creates an unprecedented advantage, which was first noted as a reason to own NOK stock.

Furthermore, Nokia and Alcatel-Lucent had established completely different regional areas of strength as independent companies. Both did well in the U.S. and Europe, but with different carriers due to Nokia’s partnership with Juniper. Alcatel-Lucent flourished in China whereas Nokia was able to penetrate India. After the merger was announced, Nokia did a phenomenal job at piggybacking Alcatel-Lucent’s presence with China’s three largest wireless service providers. Looking ahead, we believe Nokia will be able to do the same worldwide and in the U.S. as 5G CAPEX investments accelerate.

As seen above, Cisco is the 800 pound gorilla of the telecom equipment space. While Cisco Systems (NASDAQ:CSCO) has made big investments in security and services over the last few years, the overwhelming majority of its profits come from IP routing and switching. With a new spending cycle near in the U.S. telecom space, whether or not NOK stock continues to go higher will depend on whether it can capture market share from Cisco, specifically in the routing and switching space.

With the merger, Nokia now has partnerships with all four nationwide carriers. There is no guarantee Nokia (NYSE:NOK) will win large supplier contracts with all four carriers, but by offering end-to-end services, it certainly has a great shot.

Moreover, Alcatel-Lucent has steadily stolen market share from Cisco Systems (NASDAQ:CSCO) over the last 12 years. Its 7950 XRS IP router is the gold standard, and its investments in virtual routing coupled with Nokia’s infrastructure could lead to additional market share gains. At 18x forward earnings and a 3% dividend yield, it might be a bet worth making.

Is NOK stock still a good buy?

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