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How to Invest in the Smart Phone Leader

May 30, 2008

By Georges Yared, Editor, GameChangers

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Nokia begins its new life as a service company with one billion handset customers! That, my friend, is game over. One billion phone numbers, one billion addresses. Does Apple have your address? Does Google have your phone number?

Here in the U.S., we chronically underestimate Nokia’s global muscle, and that’s because a scant 5% of its sales take place here.
But make no mistake: With a billion relationships already in place, a vision of what the total connectivity experience can be, and the technology already in place to deliver, nothing stands between Nokia and an extraordinary dominance of a new field. As you may have heard, Nokia reported an excellent first quarter last month. Earnings grew 25% while revenues were up 28% over last year. And yet the stock sold off 14% the next day!

Two factors weighed on Nokia: First, as the company goes after market share in developing nations, the average selling price (ASP) for its handsets declined. I expect the ASP to not only stabilize but begin to rise as the more expensive smart phones are introduced in greater numbers. Second, Nokia management cautiously indicated that 2008 could be a "moderate" year for the cell phone industry. I've been following Nokia for a long time, and believe me, this team is known for understating their outlook only to exceed expectations. You would think more analysts would know this by now! That's OK. Their shortsightedness works to our advantage, because it's giving us a nice buying opportunity. Shares of NOK are set to break out later this year thanks to a key acquisition that will help the company make better smart phones.

These new and improved smart phones will help Nokia leverage its position as the world's number-one handset provider, and earnings should really start to accelerate. I look for the stock to start moving very soon, and I'm targeting at least $50 by the middle of next year, which would be a nice 75% pop from current prices. Down the road, I believe NOK could be a doubler!

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