Friday, February 11, 2011

Nokia and Microsoft

I added both to our portfolio. I have been Nokia holder many times during last 15 years and have considered lately to buy in again. Well, today came the perfect opportuníty. I am glad I didn't buy before the big announcement, because now I got them below 7 euros. And that I consider to be some seriously cheap Nokia stock. For one thing, I do not think market really values Nokia Siemens Networks (a joint 50/50 venture owned by Siemens and Nokia) and Navteq at all. Not that they contribute much to the overall result. Nevertheless, as separate companies each would be worth billions. Therefore, I believe there exists a healthy margin of safety in the current valuation of Nokia (forward P/E 11.96, P/FCF 11.77, P/B 2.08). In addition, the dividend yield is now in the range of 5%.

Microsoft, on the other hand, stands to gain handsomely from the Nokia's announcement to focus on Windows Mobile. Markets obviously don't think so as Microsoft was trading downwards both today and yesterday when Nokia-Microsoft deal was already looking quite obvious given all news, leaks and speculation on the subject.

Microsoft, like I have written before, is one of those companies that have moat. Economic moat is a competitive advantage that is difficult to copy or emulate and which provides a significant barrier to competition from other firms. Warren Buffett has often referred to an economic moat as being similar to a fortress or a medieval castle that one can not penetrate. Microsoft is as close to monopoly (in PC/laptop operating system market) as a company can get.

Like Nokia, Microsoft is also attractively valued. Forward P/E 10, P/FCF 12.55 and P/B 4.77. Microsoft dividend is 2.3%. Both Nokia and Microsoft have a big pile of CASH making the valuations even more attractive.

Source for all stock data / valuations:

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