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Attempts at Corporate Revival
With the smartphone revolution, Nokia Corporation (ADR) (NYSE:NOK) fell from grace. Revenue and profits evaporated and the company’s stock plummeted. The Finnish government has stated that it won’t bail out the company. Now Nokia Corporation (ADR) (NYSE:NOK) is working hard to breathe new life into the firm.
Recent U.S. market share data isn’t encouraging; Nokia doesn’t even appear in the top five manufacturers. Thankfully, its position in emerging markets is better. A recent survey in Brazil, Saudi Arabia, India and Nigeria showed that around 20% of consumers would prefer to purchase a Nokia or an Apple Inc. (NASDAQ:AAPL) device. The company recently released their Lumia 521 for income-constrained consumers. Its low price of $129 with Windows Phone 8 has helped it to sell out across many American Wal-Marts. Slowly but surely, Nokia’s Lumia phones are bringing the company back from the dead.
Even with these encouraging developments, Nokia Corporation (ADR) (NYSE:NOK) has a difficult path ahead of it. The company has a higher debt load than many of its competitors with a total debt to equity ratio of 0.73. Even though Nokia posted negative income from continued operations in 2012 and 2011, it is trading above its book value at a price to book ratio of 1.33. By 2014 it looks like Nokia could make earnings per share (EPS) of only $0.17. Until profit margins are consistently healthier or the company trades closer to book value, Nokia is a comparably risky investment.
Research In Motion Ltd (NASDAQ:BBRY) is a Canadian firm that made its money from fat corporate and government contracts. With more workers bringing their own devices to work and the Apple Inc. (NASDAQ:AAPL)’s focus on the corporate sphere, BlackBerry is facing intense competition. For situations where a very high degree of privacy is required, BlackBerry still has an advantage. A number of its devices were recently approved for the Department of Defense’s networks.
In the consumer sector, Research In Motion Ltd (NASDAQ:BBRY) still faces major challenges. In a recent emerging markets survey only 10% of consumers said that disregarding price, they would prefer to purchase a Research In Motion Ltd (NASDAQ:BBRY). The company can still carve out a niche for itself, but investors have to realize that there is a minuscule chance it will ever reach the size or power of Apple Inc. (NASDAQ:AAPL). BlackBerry’s strengths are in high security situations for governments and corporations.
On the bright side, the company has no debt and has made $108 million in normalized operating income over the last two quarters. If investors and management are willing to accept the company as a niche player, then its current price to book ratio of 0.71 and gross margin of 41.9% paint it as an interesting company to watch.
Don’t Underestimate Apple
It isn’t common to see shares of a $400 billion company bouncing around like a hockey puck, but Apple isn’t your everyday firm. The latest data shows that relative to a year ago, the company is selling more iPhones and iPads. Its revenue from iTunes and software is also growing. The company has powerful assets in the form of its well-known brand name and world class software ecosystem. Also, it has no debt and a large amount of cash.
AAPL Gross Profit Margin Quarterly data by YCharts
The above chart shows as revenue growth slowed investors have significantly shrunk Apple Inc. (NASDAQ:AAPL)’s price to earnings growth (PEG) premium. For value investors looking for a long-term investment and a piece of a 2.6% dividend, this should be seen as a blessing. Now the company trades at a price to earnings ratio of around 11 and still has a healthy profit margin of 15.7%.
Conclusion
Nokia and BlackBerry are interesting turnaround plays. BlackBerry is fighting hard to maintain its core competencies as the best option for highly sensitive communications. Nokia is fighting to regain a share of its former glory. Recent surveys in emerging markets show that it has hope. Both of these companies are good plays to watch, but Apple Inc. (NASDAQ:AAPL) offers more secure earnings and a dividend at a reasonable valuation. Compared side by side, Apple Inc. (NASDAQ:AAPL) is a better deal for value investors looking for surety and stability.
Joshua Bondy has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple.
