• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Not Sexy, at Long Last INVESTING

Posted on: Sunday, 15 May 2005, 12:00 CDT

Shares of companies that make mobile phones are enjoying a second wind at least the fourth or fifth since the popping of the technology bubble five years ago comprehensively knocked the first wind out of them. Strong earnings reports and the successful introduction of so-called third-generation phones have helped give the stocks of Nokia, Motorola and Ericsson a badly needed bounce.

Previous rallies have petered out swiftly or started from severely depressed levels, however, so buyers are taking a big bet against history. It is one that a fair number of analysts and fund managers are nevertheless willing to make, even those not easily inclined to indulge in technology stocks.

"Nokia and Motorola are very cheap, and both are on our buy list," said John Buckingham, president of Al Frank Asset Management in Laguna Beach, California. Buckingham is a value investor who likes to keep his money in his pocket unless given a compelling reason to take it out. He says he has found several in these industry leaders; in fact, he holds Nokia in his personal portfolio.

"Nokia has no debt and significant cash, and it trades at 15 times earnings," he said. Trading Friday just over 13, or $17, the stock is at a 52-week high, but "it's way below its peak," Buckingham said.

That goes for all of the sector's Big Three, which experienced share price collapses of 80 percent to nearly 100 percent. The worst hit was Ericsson; the Swedish company's stock fell from more than 200 kronor, or $28, to a shade above 3 kronor two years ago. It has since clawed its way back to around 22 kronor, a windfall for anyone who bought near the bottom but a disaster for anyone who bought near the top and hung on.

The long road down began in 2000, when it dawned on investors that the expansion that characterized the early days of mobile telephony could not be sustained. Until the early 1990s or so, the only products on the market were pricey contraptions, most of which would not have been out of place in the Batmobile, lugged around by executives who fancied themselves indispensable. With a starting point close to zero, growth could only explode as the technology improved and caught on later in the decade.

Now that the phones have become cheap, tiny and plentiful, expansion is harder to achieve. The fact that more manufacturers are jostling for position in the market, thanks to the arrival of Samsung Electronics and Siemens, does not help either. "It's a crowded space," said Walter McCormick, who oversees several funds at Evergreen Investments in Boston. "I don't think we have the same growth prospects as we did five or six years ago."

But then the stocks are not priced as though we do. Motorola and Ericsson, like Nokia, carry price/earnings ratios in the mid-teens.

Buckingham's advice is to "buy Nokia up to $18," a bit higher than the $16.82 closing price Thursday of the American depositary shares traded in New York, one of several markets where the Finnish company trades.

"Motorola we find attractive as well," he added. "Motorola's products are better, Nokia's balance sheet is better." In fact, he said, "Why not buy both?"

McCormick holds similar views of the industry, but with less enthusiasm. He described the market as "a battle of leapfrog between Nokia and Motorola," and he clearly feels Motorola is on top: The American company is the one stock he owns in the sector. Motorola "is in a sweet spot in the product cycle," McCormick said, by which he meant that it was bringing out the right frills on the right phones at the right time. Motorola's "razor phone," so named for its thinness, "has been a big success," he said.

Another big success came last year with the disposal of Motorola's semiconductor unit, now known as FreeScale. Until then, he said, the company's brain trust "couldn't seem to get out of their own way."

What appeals to Buckingham as a value investor is that Nokia and its rivals are no longer hot products on the stock market, leaving further room for appreciation.

"The interesting thing," Buckingham said of the sector, "is it's not sexy anymore." Ironically, when the stocks of cellphone makers were riding high, it was without the aid of profits. Now that they are making decent money, investor interest is only intermittent. Buckingham has an explanation for that: "The potential to achieve greatness counts for more than actually achieving greatness."

Source: International Herald Tribune

More News in this Category