<DAILY DOUBLE>
Thursday, December 17, 1998

Nokia Corp.
(NYSE: NOK.A)
Phone: 905-427-6554
Website: www.nokia.com
Price (12/16/98): $113 3/4


HOW DID IT DOUBLE?

After stumbling with the rest of the market through the late summer and early autumn, in recent weeks Nokia has found itself trading at all-time highs. The company started 1998 trading at a split-adjusted $35 a share, but now trades at a triple-digit price. The price appreciation has made Nokia one of the best performing large capitalization stocks of 1998.

The reason for the rise has been outstanding financial results with a vibrantly growing top and bottom line. The company's 1997 revenue and net income increased 34% and 92%, respectively, over that of 1996, and the current fiscal year has shown growth of a similar magnitude. For the first nine months of the year, sales are up 45% and net income is up 63%.

Total mobile phone usage worldwide is swelling, and Nokia's percentage of the overall pie has been growing at a significant clip, hence the impressive numbers. Mix in burgeoning excitement about additional digital phone rollouts as well as the real possibility of continued market share growth, and we have a stock hotter than a Finnish sauna. Ring! Ring! We have a Double.

BUSINESS DESCRIPTION

With Motorola (NYSE: MOT) and Sweden's Ericsson (Nasdaq: ERICY), Nokia is one of the "Big Three" in the mobile phone business. With large gains in market share over the last year, the company appears to have grabbed the lead as the biggest of the three. As Nokia's CEO said in the company's most recently released earnings announcement: "Based on our strong performance and preliminary market data for the first nine months of 1998, we now feel confident in declaring that we have significantly increased our market share in mobile phones to become the largest manufacturer of mobile phones world-wide."

Beyond supplying cellular handsets and infrastructure equipment, the company is also a major player in the telecommunications and networking hardware industry. While the company is based in Finland, American Depositary Receipts (ADRs) of the company's shares trade on the New York Stock Exchange.

FINANCIAL FACTS

(Assuming Currency Conversion of 1 Finnish Markka : $0.19727 U.S.)
Income Statement
12-month sales: $13.65 billion
12-month income: $1.77 billion
12-month EPS (Basic): $2.96
Profit Margin: 12.9%
Market Cap: $64.55 billion

Balance Sheet
Cash: $2.65 billion
Current Assets: $7.76 billion
Current Liabilities: $4.55 billion
Long-term Debt: $0.35 billion

Ratios
Price-to-earnings: 38.4
Price-to-sales: 4.7

HOW COULD YOU HAVE FOUND THIS DOUBLE?


Many investors may have been scared away from Nokia simply because the company is not based in the U.S. Staying within one's circle of competency is important, but the Nokia story, even though the company is foreign, is not all that difficult to understand. While the company does not file periodic statements with the SEC, it does a good job of communicating with its investors through press releases as well as through its investor relations Web page. The added chore of converting currencies and learning to read a slightly different European-style income statement is certainly worth the trouble if a viable investment idea is found.

The research may require more energy, but buying and selling the company's NYSE-traded ADRs is just as simple as buying any American company. There is no need to purchase fee-riddled mutual funds to own companies abroad; ADRs provide international exposure for investors at fraction the cost.

One could have potentially found this double by keeping an eye on the cellular phone market to see what brands were selling the best. If Nokia's technological edge was not apparent from checking the market, the subsequent surging sales certainly spelled it out. The company's comparable sales to the previous year have now shown positive comparisons for nine quarters in a row, and there is no end in sight.

Sales for the first nine months of 1998 exceed those of the entire year of 1997. Even more dramatic is the fact that the company's third quarter sales were more than 62% higher than those of 1997's third quarter. Expanding profit margins, 13.8% in the most recent quarter versus 11.9% for fiscal 1997, also provide tell-tale signals of a company hitting its stride. For a long time, the signs have been pointing north for those willing to go through the effort of translating them.

WHERE TO FROM HERE?

Over 50% of the people in Nokia's homeland of Finland use cellular phones, and many analysts are predicting that penetration in the U.S. and Western Europe, currently around 20%, could be headed to similar numbers within the next four years or so. Heavier competition and the subsequent drop in prices for cellular service are seen as the main catalysts for growth ahead.

Operating in a sector with bright expectations is good, but besting the competition and gaining large chunks of market share is even better. The company's 6100 line of phones is considered by many to be the best available at the moment. With a large display and a battery that can go over a week on "standby" time, the lightweight phones have been brisk sellers. More importantly, Nokia's products are primarily digital whereas the company's competitors, namely Motorola, have been slow getting on the digital bandwagon. Without getting into the complicated alphabet soup that is cellular phone standards, digital networks and phones are truly the wave of the future, and digital is Nokia's area of expertise.

Speaking of Motorola, Nokia has no small foe in the American firm. There are those who think that some of Motorola's products to be rolled out in the coming year could regain some of the ground lost to the more-nimble Nokia. Nokia's phones may have the current technological advantage, but product cycles in this industry are notoriously short. In order to maintain its share of the market gained in the past two years, Nokia will be forced to continue innovating to stay a step ahead of the competition. The margin for error is rather slim.

As with many stocks that are featured in this column, Nokia is dependent on a healthy world economy for its continued growth. With over 10% of the company's sales going to China alone, the Asian economic situation is of particular interest to Nokia.

At nearly 40x trailing earnings, the stock can hardly be called cheap at these levels. However, looking ahead analysts expect the company to chime in with $3.71 in profits per share next year, which puts the P/E below 30x forward expectations. With a growth story that rivals that of other technology bellwethers such as Lucent (NYSE: LU) and Cisco (Nasdaq: CSCO) but at a lower price tag, investors should certainly be dialing into Nokia and weighing its investment worthiness for themselves.

-- Paul Larson (TMFParlay@aol.com)


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