Nokia: Strong But Pricey

Nokia is the best-looking big-name technology company. The problem is, the good news is rapidly getting built into the company’s share price.

As we wrote two weeks ago at the time the World Trade Center and the Pentagon were attacked, Nokia “has weathered the tech downturn far better than any other tech giant. And at a PE just above 20, it is far cheaper than any other big-cap tech stock.”

However, Nokia has gone up more than 20% since then, while the broad market has fallen about 10%. That’s an impressive show of relative strength. However, it’s also brought the company’s PE, or price-to-earnings ratio, for this year to just under 27. With a long-term projected growth rate of about 19%, a lot of good news is getting priced into the stock.

But make no mistake about it, the news is good. Cell phone sales have reportedly been strong since the terrorist attack. On top of that, Nokia has a strong new product roll out that could boost sales well into next year. And longer-term, there’s 3G, the next-generation networks, to look forward to. Sanford Bernstein analyst Paul Sagawa, one of the best fundamental analysts out there, turned bullish on the company last week.

However, we suspect that patient investors may be able to pick up NOK stock at cheaper prices. At a minimum, a half-filled gap from last week raises the odds that that gap will be completely filled at 13.95 at some point.

And a look at the stock’s chart (see below) indicates that the recent move up was not a strong trend. ADX, an important indicator of trend strength, turned down during the stock’s recent move up. The stock ran into strong resistance at 17 yesterday, and could also be forming a bear flag here, which could project lower lows at some point.

Nokia is a solid company, but fundamentally and technically, caution is warranted here. At some time in the next month or so, the market is likely to produce a good buying opportunity. Nokia is one stock to take a look when that opportunity arises.

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