Cell phone king Nokia expects 21% profit growth and rates between `buy' and `hold'

Taking Stock

Your Money

February 20, 2005|By ANDREW LECKEY

What's the latest with Nokia Corp.? I own some of its shares, and I'm wondering about the outlook for the company.

M.P., via the Internet

It is not quite the international superstar it once was. That's mostly because it operates in an increasingly competitive industry in which handset prices have declined by one-half over the past five years.

Nonetheless, this Finnish company owns one of the most valuable brand names in the world. It does business in 130 countries, its cash flow is enormous, and it has lately been enjoying improved worldwide sales of its handsets and network gear.

Management, led by Chairman and Chief Executive Officer Jorma Ollila, is tightfisted in its spending and definitely not overpaid.

Introducing popular new and innovative handsets in its most recent quarter, Nokia held 34 percent of the worldwide cell phone market share to continue as No. 1. The overall industry enjoyed a 29 percent increase in sales last year, with Nokia and distant No. 2 Motorola regaining their momentum.

Sales in Nokia's past quarter were up 3 percent, which, while not earthshaking, were better than expected. Shipments of its smart phones, which run software and function as hand-held computers, more than doubled, to 12 million last year, giving it two-thirds of that growing market.

Shares of Nokia (NOK) are down 3 percent this year, after last year's 8 percent decline.

Despite increased sales in the latest quarter, strong worldwide competition pushed earnings down 13 percent compared with a year earlier. Sales have been strong in emerging markets but disappointing in North America because not enough of its new handset models were available.

The consensus recommendation on Nokia stock from the analysts who track it is currently midway between a "buy" and a "hold," according to the Boston-based First Call research firm. That consists of seven "strong buys," 11 "buys," 16 "holds" and one "strong sell."

Its estimated earnings growth rate is 21 percent for 2005, with a projected five-year annualized growth rate of 10 percent, according to First Call.

Could you explain the differences in mutual fund share classes? I find them confusing.

M.B., via the Internet

It's easy to see why you're confused even after you have carefully selected a fund that looks good. The various letter designations for fund classes require that you do the math and compare expenses.

The A shares typically require that you pay a sales charge or "load" when you purchase your shares. The annual expenses are usually lower than other share classes.

The B shares usually require no upfront load, but you pay a "back-end" load if you sell the fund within a certain time period. This back-end sales load typically declines over time, disappearing altogether after six or seven years. These also often convert to A shares eight years after purchase.

The C shares have a "level load." That means you pay either a small load or no load when you sell, but the annual expense ratio will be higher. C shares usually don't convert to A shares.

The I class is for large institutional investors with a large amount of cash to invest. And finally there are the popular "no-load" funds that don't charge sales fees and usually charge less in expenses.

Andrew Leckey is a Tribune Media Services columnist. E-mail him at yourmoney@tribune.com.

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