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Wall Street, California | Stock Exchange

Nokia Has Investors' Number; Earnings Hiccup at Whole Foods

Stock Exchange lets readers listen in as Times staff writers James Peltz and Michael Hiltzik debate the merits of individual stocks.

March 28, 2000|JAMES PELTZ and MICHAEL HILTZIK

Nokia (NOK)

(MIKE: Buy)

(JIM: Buy)

Jim: Explain something to me, Mike. Nokia is the world's leading maker of portable phones, and it's based in Finland. Its closest rival is a Swedish company, Ericsson. Now how did Scandinavia, of all places, get a lock on this cutting-edge industry? I mean, what's next? Greenland will be the DVD capital of the world?

Mike: Maybe it's just so darn cold up there that no one wants to leave their cars to use a pay phone.

Jim: Maybe it's something in the water. It's just that, in terms of corporate enterprise, I can't think of much else Scandinavia churns out except fish and Volvos.

Mike: Doesn't matter. In fact, I hear that the success of Nokia and Ericsson is causing a run on built-in saunas in Silicon Valley--I guess they want to see if it's perspiration that leads to inspiration.

Jim: Anyway, Nokia and Ericsson are fighting the wireless-phone battle with the likes of Motorola and Samsung. Nokia has the biggest chunk with about 27% of the global market and annual sales topping $20 billion, depending on foreign-exchange rates.

Mike: But its stock currently trades at a discount, in terms of price-to-earnings multiple, to its rival Ericsson. Some people think that makes Nokia a buy, and I agree.

Jim: I'd buy Nokia, too, but my reasons are more mundane. Quarter after quarter, year after year, Nokia has demonstrated the ability to sell quality phones that consumers want, and consumers want wireless phones more than ever. This is an exploding industry. Moreover, Nokia does well even though the price of phones keeps falling.

Mike: That's because the cost of the technology falls even faster. You know, last week we talked about Palm, the maker of those little hand-held electronic organizers. The tiny display screens on Nokia's phones make Palm screens look like 36-inch TVs. But Nokia and its rivals are packing so much more technology into those little handsets that the wireless phone is bidding to become an indispensable appliance of daily life.

Jim: You'd think it was already, judging by all those morons who make phone calls in restaurants and movie theaters.

Mike: Now, there's a trend we can count on getting worse. There are expected to be 1 billion wireless subscribers globally by 2005. And a big share of them are going to be talking into Nokia phones, which by then might be implanted in their fingernails or hairpieces or who knows where.

Jim: That's not all. Even though the whole pie is growing--by that I mean the wireless phone market--Nokia keeps grabbing a bigger piece. Prudential Securities recently noted that Nokia's market share rose 4.5 percentage points last year.

Mike: In fairness, though, this is not a cheap stock. It's price-to-earnings multiple is around 80 now, or more than twice that of the broader stock market.

Jim: I know, but when I look at Nokia's record, I believe the company will generate the growth to support that level of valuation. Another thing to keep in mind: Nokia has an excellent balance sheet with little long-term debt. That gives the company the financial horsepower to keep developing better and better phones.

Mike: There's another aspect to this stock: Nokia last week announced a 4-for-1 stock split. That won't change its price/earnings multiple, of course, but it's possible the split will give the stock an extra kick.

Jim: Like this stock needs another kick. In the last five years, Nokia's stock has soared 21-fold, while the bellwether Standard & Poor's 500-stock index has jumped about 170%. If you want to own a strong stock in a thriving industry, dial Nokia's number.

Whole Foods Market (WFMI)

(MIKE: Don't Buy)

(JIM: Don't Buy)

Mike: Now we leave the world of wireless signals zooming through the atmosphere and come crashing back to Earth--and I do mean Earth! This company serves people who don't seem to want even water sprayed on their food, much less preservatives, or genetically manipulated ingredients.

Jim: Right, these aren't shoppers looking for oversized tomatoes invented in biotechnology labs. Whole Foods is a natural-food supermarket chain that started with one store in Austin, Texas, in 1980.

Mike: Doesn't every chain have to start with one store somewhere?

Jim: Geez, I'm just trying to relay a little history here.

Mike: I know, but I'm never impressed when chains get all nostalgic about how they started with one store. I mean, IBM started with one computer, right? Before Xerox could build 1,000 copiers, it had to built the first one, right?

Jim: Are you finished? Whole Foods currently has 107 stores in 22 states and annual sales exceeding $1.5 billion. It's been expanding rapidly, not only by opening new stores--incidentally, it moved into a vacated Ralphs in my neighborhood--but also through acquisitions.

Mike: Yep, one chain it bought was Mrs. Gooch's, which had several stores in Southern California.

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