I added Finnish mobile phone manufacturer Nokia
Actually, I'm going to make it my international stock pick for 2007. I think it's a long-term hold because it fulfills a number of coveted Foolish investment principles, including status as a leading consumer brand, dominant share in a mass market with repeat purchasers, and strong historical performance and cash flow generation, with equally compelling prospects going forward.
More specifically, Nokia dominates the global cell phone market with an estimated 30% market share, or roughly double Motorola's
So how does Nokia use its size leadership to its advantage? For starters, its scale allows it to post operating margins in excess of 13% by squeezing suppliers and pushing for better terms from customers that include Vodafone
As with any stock, there are a number of drawbacks to consider. Motorola is the dominant cell-phone firm in North America, with an estimated 35% market share as opposed to Nokia's 20%. And Motorola is coming on strong, having gained share in a number of locations due to its trendy and popular product offerings such as the RAZR and SLVR.
Nokia has also been experiencing a contraction in its margins as competition eats away into its dominance, and as a result operating cash flow has fallen for the last three fiscal years straight. It's also not growing as fast as it used to as the law of large numbers has set in, meaning growth is harder to come by due to such a high international market share.
Additionally, Nokia is involved with some high-level negotiations with Qualcomm
Overall, the wireless space is ultra-competitive and very dependent on technology, but I believe Nokia will be able to maintain profitability and eventually enhance its prospects because it is best-positioned in markets with the highest growth potential. Nearly every American and European owns a cell phone, but the penetration rates are much lower in China, India, and other emerging markets. Nokia is positioning itself for max exposure to these regions.
I'm becoming accustomed to cross-checking my opinions on CAPS, so let's see how the community weighs in. Out of 318 players with an opinion on Nokia, 285 are bullish while only 33 are bearish. I'm seeing quite a few suggestions that the stock is undervalued, and opportunities are substantial in China and India, and an insightful belief that Nokia is able to use its size to cut prices and grow or defend market share. Bearish commentary includes concerns over a recently revitalized Motorola, and worries that Nokia is moving more toward the low end to keep growth chugging along.
I think the CAPS community collectively uncovered most of the key drivers to Nokia going forward. Please feel free to add your own two cents if you think we missed something. I'm sticking with Nokia on the belief that it is less well understood in the U.S. market, where Motorola is the household name. As such, Nokia represents a truly international brand and has a solid chance to maintain its industry leading position, continue generating solid cash flow, and successfully implement its global growth strategy. Plus, there are other benefits to going global.
Go here for the complete list of contenders in our CAPS international stock tournament.
Fool contributor Ryan Fuhrmann is long shares of Nokia, Motorola, and Qualcomm but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. Vodafone is an Inside Value selection. The Fool has an ironcladdisclosure policy.