Shares of Nokia (NOK) slipped over 1% in pre-market trading on Thursday despite the potential benefit the much-publicized trade war could entail for the 5G provider.
The slide comes as the French government moved to reject a motion to tighten restrictions on Nokia's main competitors, Huawei and ZTE (ZTCOY) , amid numerous accusations of impropriety on behalf of the Chinese telecom giants. Such restrictions would have provided less competition, benefiting the Nordic communications leaders Nokia and Ericsson (ERIC) .
The government has requested more time to review the motion and make a formal proposal.
"The move from 4G to 5G changes many things at a technical level," Finance Minister Bruno Le Maire told a domestic television station. "It means that the most sensitive information are not only in the core networks but also in the antennas. We must protect this sensitive information."
The comments from the finance minister follow shortly after comments by French European Affairs Minister Nathalie Loiseau that suggested Europe must act as a bloc to curb China-sponsored data theft.
"Talking to China, we can't do it each state on its own. ... we should act as Europe," she told an audience in Warsaw.
The comments suggest that the motion could be reconsidered at a multinational level and reopen a major tailwind for the stock.
"The government will find other legislation to raise up this issue," an official at the French finance ministry said. If the move is reconsidered and instituted at a European level, it could be a major tailwind to boost the paltry stock price of European telecoms like Nokia, which sits at around $6 per share on Thursday.
Action Alerts PLUS portfolio manager Jim Cramer touched on just how large crucial Ericsson and Nokia are to the potential shift in Western trade policy during a segment for Wednesday's Mad Money program.
"For years Nokia and Ericsson have been steamrolled by Huawei and ZTE," he said. "That's over. The U.S. government is doing everything it can to keep these companies out of 5G networks, not just here, but worldwide and that is a huge opportunity for Nokia and Ericsson."
"I bet both stocks will get more attractive as our government keeps ratcheting up the pressure on allies to not use anything from these Chinese companies," he added.
Cramer explained that Nokia is the preferred play based on its valuation and its long-sustained investment in 5G technology.
"The truth is Nokia's stock soared higher when Ericsson posted good numbers the week before, and stocks that run up into earnings tend to sell off even on strong numbers. Now, Nokia's American shares are at $6.05, which, to me, is crazy," he said. "I prefer Nokia here, both because it's too cheap here and because it has a better portfolio of end-to-end solutions. I have not recommended Nokia since 1997."
Now that the stock is set to open even lower, that thesis is strengthened.
5G is expected to be 100 times faster than current wireless networks and holds promise for use across streaming, self-driving cars, Internet of Things devices, and numerous other futuristic technologies, adding to the obvious application on smartphones.
Analysts along Wall Street have also keyed in on the Scandinavian stocks as key companies to watch as the U.S. animosity spreads across Western nations, forcing a reticent nation like France to fall in line.
"If Huawei ends up being banned from several markets in Europe, either genuinely afraid of Chinese influence (Germany), or bowing to U.S. pressure (many more), it would probably do good to Ericsson and Nokia," New Street Research analyst Pierre Ferragu said on Thursday.
That said, he remained uncertain on how much of a boost the macroeconomic shift would entail and noted that the stock would likely fall on overall 5G pressure before a bounce. Nokia also sources 55% of its revenue from mainland China, which cannot be ignored.
More positively, the 5G capability of Nokia in particular, while behind Chinese leaders, should be on par in a matter of months according to UK mobile network operators.
The speedier, and safer in this case, technology is already garnering attention from North American providers, many of which will be forced to turn to European partners due to trade restrictions on the aforementioned Chinese telecom titans.
"With positive comments on 5G rollout from Verizon (VZ) and AT&T (T) and growing security concerns with Chinese mobile infrastructure company Huawei, we'll continue to play the long-game with NOK shares and the 5G cycle," the Stocks Under $10 team, which holds a 4% weight on the name, said late last week.
The price target for the team remains at $8.50, suggesting nearly 30% upside for the name.
If the pre-market slide sustains, the stock could offer a compelling opportunity for investors seeking an inexpensive stock to load up on.