Please ensure Javascript is enabled for purposes of website accessibility
Turnaround Letter
Out-of-Favor Stocks with Real Value

October 20, 2023

This week’s note includes our comments on earnings from Nokia (NOK). Next week, the deluge starts, with earnings from as many as ten companies.

Download PDF

This week’s note includes our comments on earnings from Nokia (NOK). Next week, the deluge starts, with earnings from as many as ten companies.

Comments on Earnings

Nokia (NOK) – Initially recommended in 2015, Nokia has struggled for years to regain its competitiveness. New CEO Pekka Lundmark (March 2020) is finally getting the company back into the game.

Nokia reported a weak third quarter compared to a year ago and to estimates, as demand and pricing were sloppy in the Mobile Networks and Networks Infrastructure segments. The lesser segments (Cloud Services and Nokia Technologies) were healthier. In response, Nokia is pushing more operating and sales autonomy down to its business units and cutting around €1 billion in costs (roughly 4% of revenues, or 25% of EBITDA) by 2026. The company kept its full-year revenue and earnings guidance as well as its long-term 14% operating margin target, but reaching these now appears to be more vulnerable to disappointment.

Our view is that the global 5G roll-out cycle is stalling and even India’s advanced telecom spending is likely approaching its peak despite stunning 100% growth in the most recent quarter. In response, Nokia is right-sizing itself for the post-cycle era – slashing its costs and ambitions. This is exactly the right strategy but clearly not what the future looked like even six months ago.

In the quarter, sales of €5.0 billion fell 20% (down 15% ex-currency) and missed estimates by 12%. Adjusted earnings of €0.05/share fell by 50% and were 44% below estimates for €0.09.

Demand was weak in nearly all geographies except India. Sales in North America comprise about 25% of total sales, and here, sales fell a huge 40%. Telecom companies have slowed their buying as they “evaluate their spending and digest inventories” which implies over-buying in the recent past. These reasons appear to apply to most telecom customers around the globe, again, except in India.

The balance sheet remains robust with €3 billion in cash above its debt. While free cash flow was €(412) million in the third quarter, the outflow was entirely due to a recurring drain from rising working capital. Management said this drain should finally reverse in the fourth quarter, with Q4 free cash flow reaching an implied €2 billion.

All-in, Nokia’s sales outlook is weakening while its margin outlook appears better protected. The balance sheet and cash flows remain healthy, so Nokia isn’t a melting ice cube and will readily make it through the downturn. The shares discount a grim future that we believe is brighter. No change to our rating.

Friday, October 20, 2023 Subscribers-Only Podcast:

Covering recent news and analysis for our portfolio companies and other topics relevant to value/contrarian investors.

Today’s podcast is about 7 minutes and covers:

  • Earnings updates
  • Comments on recommended companies
    • Walgreens Boots Alliance (WBA) – Competitor RiteAid files for bankruptcy.
  • Elsewhere in the market
    • 5% Treasury yields are normal, but the market hasn’t digested this new reality. A Fed rate cut likely won’t help.

Market CapRecommendationSymbolRec.
Price at
Current Price *Current
Rating and Price Target
Small capGannett CompanyGCIAug 20179.22 2.48- Buy (9)
Small capDuluth HoldingsDLTHFeb 20208.68 5.32- Buy (20)
Small capDril-QuipDRQMay 202128.28 26.41- Buy (44)
Small capL.B. FosterFSTRJul 202313.60 18.99- Buy (44)
Small capKopin CorpKOPNAug 20232.03 1.14- Suspended
Small capAmmo, Inc.POWWOct 20231.99 2.64- Buy (3.50)
Mid capMattelMATMay 201528.43 20.73- Buy (38)
Mid capAdient plcADNTOct 201839.77 34.48- Buy (55)
Mid capXerox HoldingsXRXDec 202021.91 14.021.8%Buy (33)
Mid capViatrisVTRSFeb 202117.43 9.311.3%Buy (26)
Mid capTreeHouse FoodsTHSOct 202139.43 40.56- Buy (60)
Mid capKaman CorporationKAMNNov 202137.41 19.231.0%Buy (57)
Mid capThe Western Union Co.WUDec 202116.40 13.241.8%Buy (25)
Mid capBrookfield ReBNREJan 202261.32 31.280.4%Buy (93)
Mid capPolarisPIIFeb 2022105.78 94.87- Buy (160)
Mid capGoodyear Tire & RubberGTMar 202216.01 12.38- Buy (24.50)
Mid capJanus Henderson GroupJHGJun 202227.17 23.511.7%Buy (67)
Mid capSix Flags EntertainmentSIXDec 202222.60 20.42- Buy (35)
Mid capKohl’s CorporationKSSMar 202332.43 20.792.4%Buy (50)
Mid capFrontier Group HoldingsULCCApr 20239.49 4.29- Buy (15)
Mid capAdvance Auto PartsAAPSep 202364.08 51.301.9%Buy (98)
Large capGeneral ElectricGEJul 2007304.96 106.950.1%Buy (160)
Large capNokia CorporationNOKMar 20158.02 3.210.7%Buy (12)
Large capMacy’sMJul 201633.61 11.381.5%Buy (25)
Large capNewell BrandsNWLJun 201824.78 7.031.0%Buy (39)
Large capVodafone Group plcVODDec 201821.24 9.342.7%Buy (32)
Large capBerkshire HathawayBRK.BApr 2020183.18 338.66- HOLD
Large capWells Fargo & CompanyWFCJun 202027.22 41.180.8%Buy (64)
Large capWestern Digital CorporationWDCOct 202038.47 43.06- Buy (78)
Large capElanco Animal HealthELANApr 202127.85 9.10- Buy (44)
Large capWalgreens Boots AllianceWBAAug 202146.53 20.962.3%Buy (70)
Large capVolkswagen AGVWAGYAug 202219.76 12.421.9%Buy (70)
Large capWarner Bros DiscoveryWBDSep 202213.13 10.39- Buy (20)
Large capCapital One FinancialCOFNov 202296.25 92.700.6%Buy (150)
Large capBayer AGBAYRYFeb 202315.41 11.121.2%Buy (24)
Large capTyson FoodsTSNJun 202352.01 46.591.0%Buy (78)

Disclosure: The chief analyst of the Cabot Turnaround Letter personally holds shares of every Rated recommendation. The chief analyst may purchase securities discussed in the “Purchase Recommendation” section or sell securities discussed in the “Sell Recommendation” section but not before the fourth day after the recommendation has been emailed to subscribers. However, the chief analyst may purchase or sell securities mentioned in other parts of the Cabot Turnaround Letter at any time. Please feel free to share your ideas and suggestions for the podcast and the letter with an email to either me at or to our friendly customer support team at Due to the time and space limits we may not be able to cover every topic, but we will work to cover as much as possible or respond by email.

Bruce Kaser has more than 25 years of value investing experience in managing institutional portfolios, mutual funds and private client accounts. He has led two successful investment platform turnarounds, co-founded an investment management firm, and was principal of a $3 billion (AUM) employee-owned investment management company.