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Nokia Corp ADR(NOK-N)

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1 Robinhood Stock That Could Crush the Market in the Long Run

Motley Fool - Tue Jan 31, 2023

Robinhood(NASDAQ: HOOD), a digital trading platform based in Menlo Park, California, gained immense popularity among millennials and Gen Z investors in recent years. Statista shows that the platform had approximately 22.9 million users by the second quarter of 2022, with a median age of 31.

During the peak of the COVID-19 pandemic, Robinhood Markets saw an influx of attention, as its commission-free platform allowed traders to seamlessly and inexpensively buy stocks and options in highly popular names. A surge in the buying and selling of so-called "meme stocks" resulted, with many experts citing the rise of retail investors via platforms like Robinhood as one of the determining factors behind a number of high-profile short squeezes seen last year.

The vast majority of "Robinhood stocks" that made serious moves tied to the meme trade in 2021 have troubled balance sheets. These companies, which many retail investors focused on as short squeeze opportunities, were necessarily heavily shorted. Generally speaking, when the majority of investors are on one side of the boat, there's a reason for such positioning.

That said, one Robinhood stock I think could actually be a decent medium-term holding is Nokia(NYSE: NOK). This Espoo, Finland-based consumer electronics, information technology, and telecommunications company is in the middle of executing an impressive turnaround strategy. Its core segments are already seeing progress, and the company is seeing top-line growth and expanding bottom-line margins.

Here's why I think Nokia is worth considering right now.

Nokia today

It's been a relatively positive start for Nokia to kick off the new year. On a year-to-date basis, the telecom equipment maker is eking out a small gain, which has mostly been driven by strong performance in recent trading days.

On Jan. 26, the company released its earnings report, handily beating expectations on operating profit, while also providing a stronger-than-expected forecast for 2023 revenue. A key factor contributing to this bullish outlook is the company's expectation that it will continue to gain market share, with the company's 5G rollout providing strong secular tailwinds in India and other key markets.

One of the comments made during the earnings call that stood out to me was CEO Pekka Lundmark's view of digitization. He said, "We estimate that the world economy is only 30% digitalized compared to what the full potential is." Given Nokia's strong market position, there appears to be significant room for long-term growth, if the company's strategic efforts in key markets are executed well.

Nokia's promising growth outlook

Nokia, a once-dominant mobile phone manufacturer, has undergone drastic changes to its business model. The company is now primarily viewed as a leader in the telecommunications equipment sector, with its equipment playing a key role in the large-scale rollout of 5G technology around the world. This shift has led many investors to focus more on the future than the company's backward-looking results.

Indeed, trading at a discounted valuation multiple (14 times trailing earnings), and with a return on capital employed (ROCE) ratio of only 7.2% (relative to a market average around 10%), this is a company that's still got work to do. That said, as Nokia's fundamentals improve, I expect the company's valuation multiple to catch up. Indeed, if Lundmark's 2023 forecast is close to accurate, this could be a solid 12 to 24 months for investors holding this stock.

Is Nokia a buy?

In this rather uncertain market, investors may understandably want to position their portfolios more defensively for the next few years. Nokia is a company I view as a more defensive option, as I don't see the strong secular catalyst underpinning the company's telecom equipment division slowing any time soon.

Thus, this is a stock I think many investors are looking at as a way to play sustainable long-term growth arising from the 5G transition. The company's Mobile Networks division reported strong revenue growth in Q3 2022, making it a smart pick for investors looking for long-term gains. With the right strategic investments, Nokia could become a much more well-respected name in the tech industry.

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Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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