Can Nokia Continue to Explode to the Upside?

With shares of Nokia (NYSE:NOK) trading around $6, is NOK an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

Nokia operates as a mobile communications company worldwide. It designs and develops mobile products and services; provides digital map information and related location-based content and services for mobile navigation devices, automotive navigation systems, and Internet-based mapping applications; and provides mobile- and fixed-network infrastructure, communications and networks service platforms, as well as professional services and business solutions to operators and service providers. Nokia operates in three segments: Devices & Services, HERE, and Nokia Siemens Networks.

Nokia’s board is reportedly discussing a tie-up with Alcatel-Lucent (NYSE:ALU) as one of the options Nokia is exploring in the wake of the sale of its devices and services unit to Microsoft (NASDAQ:MSFT), although no official discussions with Alcatel have taken place, The Wall Street Journal reports. Nokia is focusing on its wireless holdings and its mapping software in the wake of selling its handset business. A person familiar with the matter who spoke to the Journal said that as of right now, Nokia is still far from certain about its future plans.

T = Technicals on the Stock Chart Are Strong

Nokia stock has seen a sharp decline for most of the past several years. However, the stock is currently exploding to the upside and looks to be ready to establish a new trend. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Nokia is trading above its rising key averages, which signals neutral to bullish price action in the near term.

NOK

Source: Thinkorswim

Taking a look at the implied volatility and implied volatility skew levels of Nokia options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Nokia Options

46.96%

43%

41%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

October Options

Flat

Average

November Options

Flat

Average

As of Thursday, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

E = Earnings Are Mixed Quarter Over Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Nokia’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Nokia look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

100.00%

13.64%

-87.10%

-778.57%

Revenue Growth (Y-O-Y)

-40.38%

-23.40%

-20.68%

-23.13%

Earnings Reaction

-0.24%

-12.93%

-8.92%

-5.00%

Nokia has seen mixed earnings and declining revenue figures over the last four quarters. From these numbers, the markets have been disappointed with Nokia’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Nokia stock done relative to its peers, Apple (NASDAQ:AAPL), BlackBerry (NASDAQ:BBRY), and Ericsson (NASDAQ:ERIC).

Nokia

Apple

BlackBerry

Ericsson

Sector

Year-to-Date Return

66.84%

-8.34%

-31.50%

35.25%

19.42%

Nokia has been a relative performance leader, year to date.

Conclusion

Nokia develops and delivers communications products to consumers and companies worldwide. The company is reportedly in talks with Alcatel-Lucent as it looks to offload its handset business to Microsoft. The stock has struggled in recent years but may be getting ready to establish a new trend. Over the last four quarters, earnings have been mixed while revenues have been declining, which has left investors disappointed with the company. Relative to its peers and sector, Nokia has been a year-to-date performance leader. Look for Nokia to OUTPERFORM.

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