Nokia (NYSE:NOK) looks like a potential opportunity for self-described “contrarian” investors. Shares touched a six-year low last month. Even accounting for lower guidance, those shares are cheap on a forward basis. 5G provides an potential tailwind going forward.

From that perspective, the sell-off in NOK at the least is an overreaction. But those specific attributes aside, many investors will see any sell-off like this — or any stock at a multi-year low — as an opportunity. The stock is “cheaper.” As Baron Rothschild famously said (though the quote often is erroneously attributed to Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.A) chief Warren Buffett), “the time to buy is when there’s blood in the streets.”

The problem with that attitude is twofold. Most notably, Rothschild was speaking relative to the market as a whole. Over 200 years ago, when the baron made that statement, market panics were commonplace. That’s not so much the case anymore, even though investors would have done well to buy in 1987, or 2001, or 2008-09.

Second, stocks usually get “cheaper,” or hit multi-year lows, for good reason. That’s the case with Nokia. This isn’t a case of misguided sentiment, or a bull case flying under the radar. Investors are fully aware of that bull case. They just don’t trust Nokia — and that’s what needs to change.

A Contrarian Case?

The simple problem with Nokia at the moment is that just because it is cheaper doesn’t mean it’s cheap. After the third quarter, Nokia cut its earnings guidance — not just for 2019, but for 2020 as well.

In fact, the midpoint of 2020 earnings per share guidance came down by about 37%. Right now, investors actually are paying a higher multiple relative to next year’s guidance than they were heading into the report.

To be sure, that doesn’t necessarily mean that the sell-off hasn’t gone far enough. Investors (wisely, in retrospect) didn’t trust the 2020 outlook. Nokia still insists it can drive growth in 2021 and beyond.

But the important core point still holds: there is a rational, fundamental reason for the post-earnings decline. The information included in the third quarter report suggests that Nokia’s profitability going forward will be lower than expected. That in turn implies that the share price could come down, and materially so.

This isn’t a case where the market perhaps misunderstood the report. There isn’t a market-wide or even a sector-wide sell-off pressuring the stock. Qualcomm (NASDAQ:QCOM), another 5G play, has rallied nicely in the past few weeks (though its stock admittedly sits below November highs). Apple (NASDAQ:AAPL) shares continue to roar amid optimism toward the 5G iPhone. Nokia rival Ericsson (NASDAQ:ERIC) trades just off a five-month high.

Buying Nokia here isn’t a gutsy move against the market current. It’s a bet that the company finally will get its act together, despite current evidence to the contrary.

The ‘Real’ Bull Case

To be fair, that’s still possible. 5G is a real opportunity. Chinese rival Huawei still faces regulatory pressure worldwide. The U.S. government is actively supporting its competition, including Nokia. Earnings at least are still positive. Nokia still has a good amount of cash on its balance sheet.

At some point, Nokia might start delivering on its promise — even if that point likely doesn’t arrive until 2021 at the earliest. But it’s unclear why investors would trust the company to do so. The pattern here of overpromising and underdelivering goes back for years. The multi-billion dollar gift from Microsoft (NASDAQ:MSFT) largely has been squandered.

I can see that case, particularly in a market at all-time highs where value is somewhat more difficult to find. To be sure, as a longtime skeptic, I don’t believe in that case.

It’s at least a real case, however. Buying Nokia just because it’s “cheap” isn’t. That’s not being a contrarian, but simply investing based on hope that this time is different. And as the old adage goes, those are the four most dangerous words in investing.

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