Stock Picks: HOG Up, NOK Down

Shares of Harley-Davidson (HOG) revved 6.5% higher in midday trading Thursday despite weak earnings as investors applauded more job cuts at the iconic motorcycle manufacturer.

The Milwaukee-based company posted earnings of 8 cents a share, far short of the 24 cents Wall Street analysts were expecting and a whopping 91% decline from the 95 cents a share it reported in the year-ago quarter.

Motorcycle sales fell 35% in the United States as the buying of high-end bikes took a back seat to house payments, groceries and rising gas prices. International sales slid 18%.

New Harley President and CEO Keith Wandell, didn't mince words about the grim economic climate. "Overall sales of Harley-Davidson motorcycles at retail in the U.S., declined significantly in the second quarter, with the backdrop of unemployment at 25-year highs, and consumer confidence at near record lows," he said on a Thursday conference call.

As a result, he said the company will cut 700 production workers and another 300 non-production workers in addition to previously-announced cuts. Harley also plans to stop production of its lowest-end model, the Sportster, for 14 weeks just before the end of the year.

Sharon Zackfia, an analyst at William Blair & Co., earlier this month forecast more production cuts, a call that proved prescient. "Given a likely further weakening in domestic sales, continued softness in the international marketplace, and the wildcard of a new CEO, we see good potential for further production cuts beyond management's prior guidance for a 10% to 13% reduction," she wrote.

Morningstar analyst Philip Gorham said Thursday that the cuts were in line with Street expectations, and that the company was doing as well as it could with cost cuts while maintaining the strength of its brand.

"With its funding in place for the remainder of 2009, however, we are confident that Harley will survive this economic downturn," he wrote. "We applaud the firm's efforts to cut production, because we think further measures are required to reduce dealer inventory and lower production volume will provide some support to prices in the used motorcycle market."

Bottom Line: Sell
Take this pop in the shares to get some breathing room and wait for signs of actual growth, not effective cost cuts, to provide a catalyst for shares.

Shares of cell phone maker Nokia (NOK) slid 14% in early trading Thursday after the Finnish company reported weaker quarterly sales, declining market share and a softer outlook for the second half of the year.

The company reported second-quarter earnings of 21 cents a share, down from 56 cents a share in the same quarter last year. While the company beat analysts' projections that it would earn 18 cents a share, it wasn't enough to lift investors' spirits.

The Finnish handset maker, which has lost ground to smart phone competitors Apple (AAPL), Google (GOOG), Samsung and Research in Motion (RIMM), said its average sale price dropped 3% from the first quarter, and its anticipates second-half margins that will be "in the teens."

"The mobile industry is undergoing the biggest change in its 20-year history," CEO Olli-Pekka Kallasvuo said in a Thursday conference call.

Some analysts believe Nokia is being conservative with its guidance and that sales may come in better than expected but pricing pressure will flatten out any increases. "With sales still low, we think that the company could continue to be very strict regarding cost control, which, together with a partially-renewed portfolio, may mean positive surprises in margins for handsets," Banco Santander analyst Carlos Javier Treviño Peinador wrote in a preview note published Tuesday.

Canaccord Adams analyst Peter Misek sees a less positive dynamic at work.

"We believe that Nokia continues to be hampered by market share erosion in high-end devices and margin erosion in the lower end segment," he said. "While the company is the global leading cell phone manufacturer, it is currently facing severe competition in the high-end smartphone segment from the likes of RIM, Apple and Android-based devices from multiple vendors."

Misek said it's time for investors to cut their losses on the shares, which are still up 54% from their March lows, and reiterated his Sell rating.

Bottom Line: Sell
Selling into weakness is usually a bad investing move, but Nokia doesn’t appear poised for a rebound in this difficult and competitive environment. Given that the stock has risen nearly 70% since March, it's a good opportunity to take profits.