Can Nokia Continue to Outperform?

With shares of Nokia (NYSE:NOK) trading around $7, 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 shareholders are expected to approve the $4.7 billion acquisition of the company’s smartphone unit by Microsoft Corp. (NASDAQ:MSFT) at a shareholder meeting today. Reuters reports that some shareholders are upset over the sale of a part of Nokia that’s a Finnish icon, but the financial benefits Nokia will get from Microsoft will likely outweigh that concern. The deal is expected to close in the first quarter of 2014.

T = Technicals on the Stock Chart Are Strong

Nokia stock has seen been trending higher in the last several months. The stock is currently trading near highs for the year and looks ready to continue. 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 signal neutral to bullish price action in the near-term.

NOK

(Source: Thinkorswim)

Taking a look at the implied volatility (red) 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

42.87%

3%

0%

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

Put IV Skew

Call IV Skew

December Options

Flat

Average

January Options

Flat

Average

As of today, 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 very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

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 Q3

2013 Q2

20133 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-91.96%

100.00%

13.64%

-87.10%

Revenue Growth (Y-O-Y)

-18.31%

-40.38%

-23.40%

-20.68%

Earnings Reaction

10.37%

-0.24%

-12.93%

-8.92%

Nokia has seen mixed earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have expected more from 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), Ericsson (NASDAQ:ERIC), and sector?

Nokia

Apple

Blackberry

Ericsson

Sector

Year-to-Date Return

98.10%

-2.29%

-48.40%

22.87%

18.57%

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

Conclusion

Nokia develops and delivers communications products to consumers and companies worldwide. An event that is set to used to unveil new products is generating positive buzz for the company. The company’s shareholders are expected to approve the $4.7 billion acquisition of the company’s smartphone unit by Microsoft Corp. The stock has moved higher in recent months and is currently trading near highs for the year. Over the last four quarters, earnings have been mixed while revenues have been decreasing which has left investors to expect more from the company. Relative to its peers and sector, Nokia has been a year-to-date performance leader. Look for Nokia to continue to OUTPERFORM.

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