At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best …
Swiss investment banker and CAPS "All-Star" investor Credit Suisse gave Nokia (NYSE:NOK) investors a shot in the arm yesterday. And not the "Here you go, guy -- hope you don't get lockjaw" kind of shot, either, but a healthy 1.6% injection to the stock price on a pretty gloomy day for the market.
Investors seem to be playing take-backs on that gain today, but the more I look at the numbers, the more I think Credit Suisse is right about Nokia -- and naysayers are wrong. Here's why:
The record
Let's start with the obvious: Credit Suisse is one super stock picker. Unlike so many of its peers, this banker gets more of its picks right than wrong, and ranks in the top 10% of investors tracked by CAPS. Focusing in on its telecom industry picks in particular, CS has correctly called the fortunes of such stocks as:
|
CS Says: |
CAPS Says (out of 5): |
CS's Pick Beating S&P By: | |
|---|---|---|---|
|
Qualcomm (NASDAQ:QCOM) |
Outperform |
**** |
34 points |
|
Broadcom (NASDAQ:BRCM) |
Outperform |
*** |
27 points |
|
ARM Holdings (NASDAQ:ARMH) |
Outperform |
**** |
25 points |
|
Research In Motion (NASDAQ:RIMM) |
Underperform |
*** |
8 points |
And while no one's perfect, and CS has made its share of bad calls in the sector (especially in the silicon segment of this market) ...
|
CS Says: |
CAPS Says: |
CS's Pick Lagging S&P By: | |
|---|---|---|---|
|
Spansion |
Outperform |
** |
55 points |
|
RF Micro (NASDAQ:RFMD) |
Outperform |
**** |
45 points |
|
Palm (NASDAQ:PALM) |
Outperform |
* |
7 points |
... on balance, CS's record holds up pretty well in telecom, as well as elsewhere in the market.
The reasoning
But will yesterday's Nokia pick fare as well?
Well, consider Credit Suisse's thinking on the stock. In the short term, CS agrees that Nokia is in for some "challenging" times. The banker readily admits that 2009 will be a bad year for the cell-phone handset industry, and it predicts a 13% drop in units sold worldwide this year. However, if you look out a bit further, CS sees "volume, revenue, margin and valuation" rebounding in the back half of this year, and unit sales jumping 15% in 2010 as pent-up demand from sales not made in 2009 is unleashed.
Overall, the dozens of analysts who track this stock for Wall Street hold similarly bullish views for the future. On average, they see Nokia growing its profits at nearly 14% per year over the next five years. With the stock trading for a P/E of almost 8 right now, that earnings growth does not appear to be priced into the stock. And while Nokia's free cash flow has taken a hit of late, the company still generated more than $3.2 billion of it in the last 12 months. So, with an enterprise value of some $44.9 billion, Nokia's free cash flow is being awarded a multiple of 14.
Foolish takeaway
With a mouthwateringly low P/E, a fair valuation based on free cash flow, and about $3.4 billion in net cash bulking up its balance sheet, Nokia shares look fairly valued at worst and dirt cheap at best.
Personally, as a Nokia shareholder myself, I'm impatient to see Credit Suisse's promised rebound. But with a fat 4.5% dividend yield to keep me company, and a price too low to even consider selling the shares, I can afford to wait.
