Nokia recommendation. (Read IDC between the lines)
IDC's 3G fortunes are tied in part to those of Nokia. Its reassuring, therefore, to see very strong recommendations of Nokia like this one below from Quicken.com on AOL.
Bill
FROM: Quicken.com (on AOL)
MY FAVORITE STOCK: NOKIA
A Fund Pro's Best Bet
Week ending March 24, 2000
The pro: Faisal Khan, co-manager of the $5 million (net assets) Khan Growth fund.
His pick: Nokia (NOK), a $232 billion (sales) telecommunications and consumer-electronics company with headquarters in Finland. It represents about 6% of the Khan fund.
Likes: Goliaths in fiery sectors like technology and telecommunications. Khan focuses most of his energy on determining what facets of the economy offer the most growth potential. Right now he is especially keen on companies that create bandwidth and support the overall growth of the Internet. To manage risk he invests across the top players in specific sectors. "For everything you know about a company, there's a lot that you don't know," he explains.
Dislikes: Fast trading. His fund's annual turnover rate is a modest 45%, and he hasn't distributed any capital gains since the fund's July 1997 inception.
Why you
should care: In addition to professional pride, Khan and his co-manager have very personal reasons for wanting to succeed: They are two of the fund's largest shareholders. So far, they've produced index-beating returns. Last year the fund returned 26.1%, compared to 21% for the S&P 500. And in 1998 it racked up a hefty 33.2% increase, outpacing the S&P by 4.61 percentage points. So far this year, the fund is up 2.5%, compared to the S&P's 6.8% decline.
Quicken.com: This sector certainly has the growth prospects you want. What does Nokia's performance look like?
Khan: It's earnings are growing at 25% and revenues are close to 50%. It can't keep up with orders. It is in the midst of plans to create some new phones right now. And it's building more plants.
Quicken.com: Does that gap between earnings and revenue growth concern you?
Khan: As they become more efficient, they will increase the earnings per share. Right now, the company is rushing to keep up with orders and keep it moving. It is in the midst of such explosive growth that it doesn't have time to be efficient. As revenue growth starts to slow down, the efficiency will grow. You can't keep up at a 50% growth rate forever.
Quicken.com: Why do you recommend this company over industry leaders like Motorola and Qualcomm?
Khan: A lot of its competitors overstated their value. They've become very expensive. That's why we have a smaller amount in Qualcomm. Qualcomm was one of the best gainers last year, and it did jump ahead of itself. Nokia is trading at about 70 times next year's earnings. Qualcomm is 200 or more. And Motorola is at about 120 or 130 times earnings. So, Nokia is at a discount to those companies.
Quicken.com: You place a lot of importance on management. What do you think of Nokia's team?
Khan: I place it at the top. They've been smart about where to expand. The company started off in Norway and moved pretty quickly into Southern Europe. That was where there was little competition. They're doing the same thing now and moving into Asia and South America. They were also quick to make the shift from analog to digital phones. That showed their flexibility.
Quicken.com: You're looking for a 25%+ gain in the stock price over the next 12 months; given that bullish outlook, does that mean you don't have any major fears?
Khan: One of the difficulties of jumping into these foreign economies is that there are a lot of strategic relationships with the government that you have to develop. The satellite technology providers are government-owned in most Third World countries. So the question is whether Nokia will be able to push out the competitors and develop those relationships. But it has done well in the past. I think it will continue to do well. It's a company that we will likely be holding onto for years to come.
THE UPSIDE GET A QUOTE:
Nokia Stock Price*$202 Target Price $250 (12 months)
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