analyst believes company has gone as far as it can but says marks & spencer and Porsche have long-term potential
A MFS research analyst has made a 'contrarian call' to fund managers to sell Nokia as he urged post-bubble investors to move away from consensus thinking.
Simon Todd, European Research Analyst for MFS Investment Management, detailed his favoured investment strategies for uncertain markets at the Investment Week Markets Forum 2003.
Todd said: 'The consensus is that you have to own Nokia because it makes up 2% of the European index and it is the best of a bad bunch in the technology sector.
'That is most people's starting point and then they follow up by saying there is going to be a huge growth in mobile phones and that it is a growth market.
'Well, I just consider this to be so absurd and I am willing to stand here and tell you that I think Nokia is going down.'
He added almost everyone has a mobile phone by now and the idea that masses of people were going to bin their mobile phone 'in order to get a mobile phone with a camera on it' was 'absolute nonsense'.
Nokia made a 25% margin on mobile phones, said Todd, and the experience of past electronics product innovators showed this would not be sustainable for long. He pointed out that when the calculator market took off over 30 years ago the market leader, Texas Instruments, had made a 25% margin. Now, said Todd, it makes 2%. The world's largest computer manufacturer, Dell, makes only 7% and Sony, the market share leader for televisions, makes 3%.
Todd concluded: 'I think believing Nokia will make 25% for five or 10 years is a pretty big leap of faith.'
The Nokia example, said Todd, illustrates how consensus thinking is not focused on the long term. Such a short-termist view takes a top-down sector-led approach, but contrarian investors are typically proved right in the long term with bottom-up analysis that honed in on company specifics, according to MFS. Todd criticised consensus thinking for being behind the game so often. He recalled how torrents of new money flowed into US technology funds from mid-1999 as fund managers were magnetised by the funds' 1998 and 1999 returns of 52.7% and 134.2% respectively.
But most of the new investment was too late: the return on the funds in 2000 sank to -31.5%, 2001 saw them hit -37.3% and 2002 -44.7%.
Todd advised his audience that Marks & Spencer and Porsche were two other stocks which the top-down short-termist analysts were making a wrong call on. The consensus, he said, is that these stocks are in trouble, but he would advise investors to buy them because the companies' fundamentals look good from a bottom-up long-termist point of view.
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