Should you buy on Nokia's drop?

Even with some new smartphone announcements, shares continue a selloff that began in late August.

By Jim J. Jubak Sep 5, 2012 6:28PM
Shares of Nokia (NOK) tumbled 15.9% Wednesday to close at $2.38 after the company introduced two new smartphones, the Lumia 920 and the Lumia 820, based on Microsoft's (MSFT) new Windows Phone 8 operating system. (Nokia is a member of my Jubak's Picks

Sell on the news? Possibly. Nokia’s shares were up 92% from July 17 through Aug. 27. And Wednesday’s drop just continues a sell off that began after that Aug. 27 peak.

Post continues below.
Disappointment with the phones themselves? Well, maybe a bit -- if you were expecting the new Nokia phones to walk on water while whistling and chewing gum. The technology reviews (see
one here from Gizmodo) have been far and away positive, praising the phones’ look and feel, interface, camera, display, and proprietary Nokia apps. But the reviews have also raised the crucial question of whether or not these positives are enough to get a significant number of users to switch from Apple's (AAPL) iPhone or a Samsung (or other maker’s) Android phone.

The big problem, though, with Wednesday’s announcement, and the one that I think is most responsible for the drop in the stock, was Nokia's vagueness on when these phones will hit the market -- and at what price.

It's not enough to say that they will be available in select markets sometime in the fourth quarter, as Nokia did Wednesday morning. It’s critical for Nokia that the phones be available in volume in lots of markets in time for the year-end buying crush. Miss that season and Nokia could flame out in a burst of red ink -- the new phones are likely to depress sales of existing Nokia models and if Nokia doesn’t have enough of the 920s and 820s on sale to make up for that drop, it will be a huge strain on a company already facing big cash drains.

The price issue is almost as important. Nokia’s Lumia won’t have the cachet of the iPhone or Samsung’s newest Galaxy models. To gain traction, to give the phone even a chance of picking up some market share, it will have to sell at a discount to those phones. Will it? Investors don’t know after Wednesday’s introduction. And if it does, will the discount be big enough to make some part of the market willing to try a Lumia?

Without answers to those questions, Wednesday’s product introduction was long on sizzle but short on steak.

We know that the product is good enough to be competitive, but we still don’t know if Nokia’s execution will jump that same bar.

I wouldn’t be surprised at all to see Nokia shares dip again new week when Apple launches its new iPhone. And I don’t expect them to have much of a chance to rally until Nokia addresses the big holes in Wednesday’s product introduction. If you’re playing this as a swing trade, as I have been, I think it’s at least a week too early to buy.

(Microsoft owns and publishes Top Stocks, an MSN Money site.) 

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did own shares of Nokia as of the end of March. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 
3Comments
Sep 5, 2012 8:55PM
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Umm, Nokia shares actually bottomed at $1.63 and rose a 100% before falling back today to $2.38. I  wouldn't buy anything in mobile until Apple's latest iPhone redo is made public and we can see what size of rectangle they've patented this time.
Sep 7, 2012 2:57PM
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As an early adapter.....when the stockboy in the warehouse sports an iphone I think its time to switch to the Nokia Lumia and break from the herd!
Sep 6, 2012 12:02AM
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Of course you could buy some of the various Jan 2014 NOK options that fell 19-44% today with the $2.50 and $3 calls having good time value and less downside risk than the NOK ADRs.
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