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SIVY ON STOCKS from money.com
May 7, 2001 Higher Flyer Top techs such as Nokia may not look cheap by traditional valuation measures. But they may still be good buys. By Michael Sivy Value is a relative term. Every once in a while, you get a chance to buy shares in a company with annual earnings growth of more than 20 percent at a price/earnings ratio of 16 or less. But that doesn't happen very often. Most of the time, conservative investors are lucky to find 14 percent growth at a 16 P/E. Slightly more aggressive investors might be happy with 18 percent growers at P/Es in the low 20s. The most successful growth stocks, however, may never fall all the way down to those cheap valuations. But that doesn't mean you shouldn't buy them. In fact, there are good reasons to devote at least a part of your portfolio to those kinds of high flyers. For one thing, those companies are typically among the world's most successful. In addition, they receive ongoing support and sponsorship from Wall Street analysts. As long as they continue to meet expectations, they will hold up fairly well in temporary market downturns. And they will be among the first stocks to bounce back. A perfect case in point looks to be Nokia [NOK]. The Finnish giant is the most successful firm in one of the world's most rapidly growing industries. And since 1997, Nokia's share of the global wireless-phone handset market has risen from less than 20 percent to 35 percent, helping the company nearly double earnings per share since 1998. Of course, no company can increase its market share indefinitely, but there are several factors that should help sustain Nokia's superior profit growth. Since most everyone who would use a cell phone already has one, the bulk of the sales of cell phones using existing technology is replacement business. And when existing users switch phones, they tend to maintain brand loyalty -- if they change providers at all, they migrate toward the strongest one (say from Ericsson to Nokia, but not the other way around). As a result, Nokia could gain another couple of market share points in current-technology handsets. Even more important, the company is capable of attaining a market share topping 40 percent in the next generation of handsets -- both those that use more sophisticated technology for voice transmission and those that will provide paging, instant messaging, and Internet access. Overall, the handset market is projected to grow at an annual compound rate of just under 23 percent over the next four years. And with market share gains, Nokia's sales should do even better. In the past few quarters, the over-capacity problems that have plagued the telecom industry have been hurting handset makers as well as service providers. Not only has growth slowed -- total sales of cell phones were up only 12 percent in the first quarter -- but the introduction of new technology is being delayed. As a result, Nokia's earnings, up just 15 percent in the first quarter, will likely fall short of a 20 percent gain for the year as a whole. Once the current slump passes, however, Nokia's growth should recover to nearly 25 percent a year. And so, despite a P/E of 40 based on estimated earnings for the current year, the stock seems quite attractive. At $33, Nokia is trading at just over half the level it was a year ago. And the share price, which dipped as low as $21 a month ago, now appears to be in an upswing. Even if the next couple of quarters show subpar results, Nokia figures to be back among the market's brightest stars within 12 months. ### Post your comments on Michael's column at: http://www.money.com/depts/investing/sivy/index.html To subscribe or unsubscribe to Sivy on Stocks, go to: http://www.money.com/email/ ----------------------------------------------------------- MARKETPLACE ----------------------------------------------------------- CONTACT THE BIGGEST COMPANIES IN THE WORLD! Over 5,000 contact names in the OFFICIAL FORTUNE Databases. DOWNLOAD THEM NOW! http://www.fortune.com/datastore/?mn1 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Special Internet Offer!!! 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