Plenty of positive things can be said about contrarian investing, but surely not every out-of-the box idea works. For the strategy to succeed, a lot of important pieces have to come together at the right and propitious time.So when investment manager Carl Birkelbach, president of Birkelbach Investment Securities, suggested to me in February 2009 that he was buying shares of Ford (F), one of the most unpopular stocks at the time, I was intrigued by his courage to go against the massive tide. Ford was trading then at just $1.85 a share. He insisted that the stock had bottomed, arguing that with an economic recovery in sight, Ford should benefit the most among automakers in large part because of its new management led by CEO Alan Mullaly, an auto industry outsider. He was chief executive at Boeing before he agreed to join Ford.

"Ford is the only one with a fighting chance to get out of the auto industry's deep hole," Birkelbach asserted. I thought he had a point, so I wrote about it in my Feb. 23, 2009 column at BusinessWeek. He was on the money! Since then, Ford has skyrocketed to $12 a share. Birkelbach made a bundle and he still likes Ford as a long term investment.

Nokia Could Be An Unlikely Winner

Now he is again on another struggling giant: Nokia (NOK) , the world's largest manufacturer of mobile phones and second largest supplier of wireless infrastructure equipment. In fact, Nokia is on the ropes.

Stiff competition exacerbated by the lack of a flagship high-end phone model and sluggish demand that put pressure on margins has stymied Nokia's sales growth. Standard & Poor's estimates that 2009 Nokia's sales dropped 20% and earnings tumbled to 85 cents per American Depositary share, from $1.54 in 2008 and $2.84 in 2007.

Not surprisingly, Nokia's stock plunged, all the way to $8.47 a share by Mar. 9, 2009, from $38 in 2008. For 2010, S&P analyst Jason Wiley forecasts earnings of 90 cents a share. The stock has since bounced to $13 by Jan. 18, 2010.

Again, Birkelbach donned his contrarian hat. He's convinced Nokia would be another unlikely winner. He figures the stock will hit $25 within 12 months. Unlike most other stocks that have rebounded strongly from their March lows, Nokia is still muddling along, he concedes. But he is betting the stock's time to rally aggressively will come before long as Nokia rebuilds to streamline its product line and deliver more attractive handsets, including some high-end, upscale phones.

Big Stakeholders Bail Out

Birkelbach finds comfort in the fact that he isn't among the big crowd of Nokia disbelievers. Of the 30 Wall Street analysts who cover Nokia, 19 are neutral and three recommend selling the stock. Only seven analysts rate the stock a buy. And some big stakeholders have bailed out, such as Fidelity Management, which had sold 8.1 million shares as of Sept. 30, 2009, according to Bloomberg News. It still owns a 2.3% stake, however. Another big seller was money-management firm AXA, which unloaded 6.2 million shares as of Sept. 30. At the same time, though, several institutional investors bought shares, including Vanguard Group, which purchased 18 million shares and owns a 1% stake and Dodge & Cox, which bought 23.9 million shares, as of Sept. 30.

S&P's Wiley, who rates Nokia a hold, is more positive about the phone maker's long-term prospects. "We believe Nokia will close the gap on rivals in the smartphone segment and put forward a more compelling offering of hardware, software, and applications," predicts Wiley. Nokia's "core of advantages," he believes, is in its economies of scale and distribution, which allows it to "continue to dominate the important low-end of the market."

Nokia is scheduled to introduce a line of new products this year, with new smartphones expected to come to the market by the latter half of 2010. For the first and second quarters of this year, Nokia is still expected to lose some market share, but it should reverse the trend thereafter, says Mark Sue, analyst at RBC Capital Markets, one of the Nokia bulls who rates the stock outperform.

Nokia is intent in catching up and getting top billing again. "Nokia remains focused on driving efficiency to reduce costs and improve is speed to market," says the analyst. It's still a year of rebuilding "as the company fends of competition, streamlines its position, and readies more compelling devices," says Sue. For all of 2010, he figures Nokia's production will increase 10%, to 470 million units from a year ago.

An Apple Agreement Should Push Shares Higher

Nokia has other things to take care of as it fights to get a grip on its efforts to get ahead. It is currently engaged in a patent-infringement battle with Apple (AAPL), which analysts expect will heat up soon. Apple has filed a counterclaim against Nokia after the latter lodged a complaint with the ITC alleging that Apple had violated its patents.

"We believe this battle will escalate and expect Nokia to push Apple into a Nokia-favorable royalty agreement," says Ittai Kidron, analyst at Oppenheimer, one of the fence-sitters who rates Nokia "perform."

Birkelbach believes Nokia will, indeed, succeed in extracting an agreement from Apple. "That should propel the stock higher," he says.

If it does convince Apple to agree to a licensing agreement, it should assuredly help drive the contrarian view in Nokia's favor and once again attract investors.

Meet Gene Marcial at the World Money Show Orlando, Feb. 3-6, 2010, at The Gaylord Palms Resort=

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