Published: November 16, 2010

In a recent interview with Money magazine, finance guru Roger Ibbotson stated that, as an investor, what is "most relevant to you is whether and how you're doing something different from what everybody else is doing."

For those not familiar with Roger Ibbotson, he is worth getting to know, as he is one of the foremost authorities on the market. The firm he founded, Ibbotson Associates, publishes an annual edition of a yearbook that has become the primary resource for historical returns for stocks, bonds and other securities.

His stance definitely qualifies him as a contrarian investor. As a fellow contrarian, I find it difficult to determine how investors believe they can make money by owning a stock like Apple Inc. (Nasdaq: AAPL). Sure, I'm kicking myself for not owning any shares as they made their meteoric rise from below $8 per share in early 2003, but, as the saying goes, past returns are certainly not a guarantee of future returns.

At current prices, Apple will need to grow sales and profits in the double digits for another decade. I came to this conclusion by using a discounted cash flow analysis to back the growth expectations baked into the stock at the current price. This also takes into consideration the recent cash flow levels generated by the company and my need to make at least +10% on a stock annually in order to considerate it a buy.

This means that Apple's stock market capitalization will need to grow from just under $300 billion to almost $900 billion within a decade. Soon after that it will become a trillion dollar firm. If you believe that will happen, then be my guest in remaining or becoming a shareholder. In my mind, Apple's recent level of growth will be very difficult to repeat in the years ahead. And the fact that investor sentiment is almost unanimously bullish (out of 53 analysts, 49 have "buy" recommendations) means there is much more downside risk than upside potential.

Nokia (NYSE: NOK), on the other hand, only has nine "buy" recommendations out of the 33 analysts currently covering the stock. There is no question that this bearishness is warranted, even though Nokia has the highest market share of the global cell phone market, because Apple and other smart phone providers are literally eating Nokia's lunch.

Nokia controls about a third of the market worldwide but is lagging badly in the smart phone space. However, its recent product offering in the space, the N8, has received positive reviews, and new CEO Stephen Elop is said to be streamlining a corporate culture known for being overly bureaucratic and subsequently too slow in introducing new phones and operating systems to market. Recent data points suggest he is already starting to right the ship, as the latest quarter saw Nokia post the highest growth in terms of smart phone shipments during the quarter. Its Ovi operating system is also getting positive reviews.

Nokia also has its sights set on a mass market that few in the industry will be able to profitably exploit: developing markets. The company's global distribution network will allow it to reach international markets that don't currently have the means to afford smart phones and similar high-tech gadgets. A recent study estimated that two thirds of the world's 4.6 billion cell phone users live in emerging markets. Nokia already controls 34% of the market and can turn a profit on a huge market by charging only a few of dollars per monthly subscription.

Action to Take ---> A big investment merit for Nokia is that the bar is set low in terms of its future success. At a current share price under $11, the market is only discounting a little over +5% annual profit growth during the next decade. I find this much easier to digest than Apple's double-digit expectations. If Nokia can return to double-digit growth reminiscent of its heyday as it grew to be the most dominant firm in the industry, then its shares can appreciate at least +50%.

The downside risk for Nokia is also much more limited. The market isn't currently projecting much success for the company's smart phones or overall growth going forward, so about the worst that can happen is the stock remains flat while investors collect a hefty current dividend yield of about 3.8%. For Apple, the downside is a double-whammy -- profit slides and the earnings multiple swiftly contracts as growth and momentum investors flee the stock as fast as they can.

The upside for Nokia is no guarantee, but the reasons are compelling. And going against conventional wisdom is the only way you're going to make money over the long haul in the market.

-- Ryan Fuhrmann
Contributor
StreetAuthority