1 Beaten-Down Tech Stock That Could Skyrocket

I can't seem to get away from the Lumia 900 phone these days. I keep turning on the TV to new ads, sales records, and hype. This phone is changing the way people use phones. Oh wait. No, that's the iPhone that I'm thinking of. Nokia (NYS: NOK) delivered another dingy when it needed to build a cruise liner. In the face of a rapidly advancing market, it looks like this ship is sunk -- but there might be a lifeboat.

Whatever the opposite of market leader is
Nokia used to make some of the best phones on the market. The stock performed well in the first few years of the new millennium, and then when the market crashed, it fell along with everyone else. The problem was that it never recovered. At all. The first iPhone launched in 2007, and by the end of 2008 there were millions of the little things on the market. Nokia started to fall behind only to be crushed when the Android handsets caught on.

Nokia has made a valiant effort recently, partnering with Microsoft (NAS: MSFT) on the Windows phone. But falling sales recently forced Nokia to announce layoffs, dropping an additional 10,000 people from its workforce by the end of next year. The market took the company to task for that and for its lowered second-quarter outlook. By midday, the shares had dropped like a call in a tunnel, down almost 16% to $2.35. But as it turns out, all this horrible news shouldn't put you completely off Nokia.

Making the most out of what you can salvage
Nokia is doing two decent things right now. The first is undertaking a smallish but important change in leadership. Company leaders in marketing, communications, operations, and cellphones are all rotating at the beginning of July. That's good news, because the company is doing none of those things well. Last year sales were down 24% from their high-water mark in 2007.

Nokia has had a rough time trying to maintain share in the American market, and in 2011 only 1% of sales came from North America. To me, this represents the company's untapped market. Unlike normal companies, trying to break into Asia and China, Nokia needs to get a foothold in the States. Even one decent America-centered phone could mean a huge uptick in sales. I'm hopeful that the new team can make it happen.

Even more interesting
Better than the possibility of a new phone is Nokia's ongoing work with Siemens (NYS: SI) . The two companies have formed a joint venture that focuses on creating networks for cell carriers. Nokia-Siemens has created a reactive cell-tower technology that will help carriers get more out of their networks. This new tech is fighting with Alcatel-Lucent (NYS: ALU) and Ericsson (NAS: ERIC) , both of which have launched small-cell-tower options to accomplish the same end.

However, I think Alcatel-Lucent and Ericsson are just repurposing existing technology -- albeit in a very intelligent and helpful way. Nokia's solution is much more disruptive to the traditional static network concept of cell towers. While the other companies will no doubt do well, Nokia seems poised to make a huge impact.

As an extra layer of goodness to top off this potential, Nokia has to pay attention to its business partner, Siemens. Siemens has a slightly better track record than Nokia, with orders falling but revenue rising over the past year. I have more faith in the venture because of Siemens' involvement.

The risk
There are two main risks with Nokia, and finally, bonus potential. Investors need to watch closely the company's operations and sales growth. If sales continue to flatline, costs have got to start coming down. Anything else will show that the new team is unable to step up and make any real changes. I'd also want to see growing sales in North America by the end of the year. This would most likely come through the Windows Phone.

The other risk is that better technology gets passed over. If Alcatel-Lucent and Ericsson start to dominate the new networks with their cheaper products, then Nokia-Siemens is sunk. I want to see big, metro-area contracts signed as soon as carriers start making changes, which could be as early as the third quarter of this year.

If Nokia can manage these two issues, it's going to take over the small-cell-tower market. As a bonus, if it fails to break out from competitors, Nokia's rock-bottom pricing makes it a nice little takeover target. Companies from Samsung to Microsoft have been floated as opportunistic buyers, and if shares continue to drop, it might just make sense.

While Nokia isn't a sure bet, I think things are looking less dire than the stock price suggests. But they aren't the only ones poised to profit from the boom in cellphone usage. The Fool has created a free report highlighting one mobile stock ready to pop. Get in before the rest of the market catches on -- get your copy today.

At the time thisarticle was published

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