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JBL: Dialing Up Nokia

John Layfield

Thank goodness I am in the Keys fishing this week instead of having to deal with the transit strike in New York City. I did complete the rare mackerel slam today, all three species of mackerel; however, I was fishing for sailfish so it is just slightly less impressive.

Wherever you are -- even stuck in NYC this week with the transit strike -- this is still the best season of them all.

Last week, I gave an early Christmas gift to everyone with my American Express (AXP Quote) pick. It is up only a small percentage since I picked it, but there is terrific news out on the stock this week (which I address below).

I want to stick with the Christmas spirit of making money with another stock pick today that has its roots in a country that claims the origin of Santa Claus, Finland.

St. Nicholas is said to have his origin in Turkey, my previous cell-phone play. However, northern Lapland in Finland claims the origin of the friendly fat guy that slides down chimneys with his reindeer waiting on the roof.

Calling Rudolph

There were about 815 million cell phones sold in 2005. The amount of people using mobile phones is estimated to be 3 billion by 2010, up from 2 billion today.

Consumers are becoming more and more dependent on their cell phones and don't mind spending more on something they carry with them all day. Unlike a land line, consumers upgrade their cell phones regularly with newer models that have better technology.

Two companies best positioned to benefit from the surge in demand of mobile phones are Motorola (MOT Quote) and Nokia (NOK Quote).

Motorola has been the comeback kid in the cell-phone business this year. They have been able to be the comeback kid because Nokia fell behind the curve.

Nokia made a bad strategic decision to not go with the clamshell cell-phone design and stay with the candy bar design. Motorola took advantage of this strategic error and took market share. Motorola came out with one of the first "must have" items of the 2004 Christmas season with the new Razr phone.

Nokia is still the market leader though, and doesn't plan on losing its position anytime soon. Nokia has rapidly caught up to the consumer.

I believe both companies are good plays on the cell-phone market. They both have around $13 billion in cash. However, Nokia has virtually no debt while Motorola has around $5 billion in debt.

Nokia has a pristine balance sheet and about $3 a share in cash. Nokia also has about 55% of its business in the fast growing markets of Europe, Middle East and Africa. They have been almost untouchable there as the market leader.

Nokia has been great at getting into markets with cheap, reliable phones and later educating consumers to the higher margin phones. Nokia trades at a forward price-to-earnings multiple of around 17, with an estimated growth rate of just over 10%. Nokia yields around 2.4%.

Economies of size have caught up to these companies and neither is considered a growth story anymore. I believe Nokia is a better buy than Motorola, and a great core holding and solid long-term investment. Nokia is a company that is going to make a lot of money for many, many years.

With a company that has almost no debt, tons of cash and is still the market leader, you can't go wrong with this Christmas gift.

True Bargain Under the Tree

My last article talked about American Express' upside potential. The key to my optimism is found in the opportunities in the credit card business that it's previously been shut out of by Master Card and Visa.

This week, American Express announced a huge deal with a partnership with Bank of America (BAC Quote), which followed an announcement of a deal with Citigroup (C Quote). This will give the company huge inroads into the consumer credit card market.

Already having a 30% return on equity, the partnerships it has recently formed have an ROE significantly higher than that. This is huge news, buy this stock now.

American Express is a true Christmas gift, a Dow stock that will double earnings in the next few years. Even the fat guy in the red suit couldn't top this one.

With that, I wish all of you a Merry Christmas and Happy Hanukkah. And for those of you that are so politically correct that you are offended by those statements ... then Merry Christmas and Happy Hanukkah anyway.