Nokia Corp (ADR) (NOK)

ValueArbitrage (50.74) Submitted: 9/23/08 2:42 AM : Start Price: $20.12 NOK Score: -1.89

In today's market I am looking to purchase businesses with entrenched compeitive positions, fortress like balance sheets, that are cheap (when their revenues and margins are normalized) on a relative and absolute basis. I prefer they generate excess cash and are priced for zero earnings/cashflow growth.

NOK is one of those companies. It is the low cost producer. It also spends significantly more on R&D than its competitors. The result has been a fantastically strong market position worldwide. This is a high quality business yet it doesn't trade like one.

At current prices, we have the chance to pay roughly 8x FCF (adjusted for cash) for a business with ROIC in the low 30's, and close to a 4% dividend yield. Over the next 2-3 years, I expect earnings growth and multiple expansion to drive above average returns as today's price is just to cheap for a competitively advantaged, high return business with ample reinvestment opportunity.

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