Cell-phone giant Nokia (NYSE: NOK) was getting no respect in mid-July when investors sent the stock to a two-year low. It's up 8.6% since then, while the Standard & Poor's 500 has managed only a 0.7% gain.
At that time, Nokia's guidance called for a decline in earnings from an expected euro .17 a share to .08 to .10 a share. Fast-forward to today, and Nokia is telling investors that business is improving and earnings will be in the euro .11-to-.13 range.
For those hearing a Gong Show ring with this news, consider this: Nokia is cash-rich and has industry-leading operating margins -- and the stock sells for a measly 12 times earnings. With the peak holiday season approaching, Nokia is improving just when it really counts.
Alyce Lomax recently reported that there were shortages (because of booming sales) of a popular Nokia model. But, even with an industrywide tightness in some components, Nokia is saying that it expects "healthy sequential volume growth." That hardly sounds like a company in trouble.
When Seth Jayson and I dueled over Nokia, the critics were harping that competitors Motorola (NYSE: MOT), Sony (NYSE: SNE), and Ericsson (Nasdaq: ERICY) had grabbed the mid-priced flip-phone market. Nokia, with 40 products ready for launch in 2004, introduced new flip phones and is now back on its quest for an overall 40% market share.
As with any high-technology product, new feature leadership is critical. Nokia, not NEC (Nasdaq: NIPNY), is the leader in camera-phone shipments. And Nokia, not palmOne (Nasdaq: PLMO), is the world's top seller of mobile computers. So, for now, the features are there.
The key to Nokia: It dominates a rapidly growing business. When mainframes ruled the computer world, its dominance made IBM (NYSE: IBM) a great investment. As Nokia regains its footing, expect it to use its operating margin advantages to maintain and grow its market-share dominance.
For more chatter about Nokia, see:
Fool contributor W.D. Crotty does not own stock in any of the companies mentioned but does own a Motorola flip phone.
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