With 2016 off to the worst start of any year’s market, most investors are wondering where they should be putting their money. The massive growth stocks are taking it on the chin and valuations are still sky-high, and anything tied to oil and commodities has been in free fall, with no fundamental recovery in sight. For those who still are brave enough to risk the stock market, that pretty much leaves value stocks and other beaten-down stocks that may be bargains as potential investments for the long term. One research firm believes that a huge opportunity for gains awaits Nokia Corp. (NYSE: NOK) after it completes the Alcatel-Lucent S.A. (NYSE: ALU) acquisition.

The independent research firm Argus raised Nokia’s rating to Buy from Hold on Friday as the Alcatel-Lucent merger nears completion. What stood out was that the firm’s $12.00 price target on Nokia’s American depositary shares was over 15% higher than the $10.35 street-high analyst target of $10.35, according to Thomson/First Call. All in all, this left more than 62% upside from the prior $7.38 close. For those investors looking at Nokia after the call, the major sell-off on Friday took shares to $7.16, implying more than 67% upside, without even considering that Nokia pays a dividend to boot.

Before investors just run out and blindly buy here, there are some things to consider. The first is that Argus now has the highest listed price target by far. That means that the firm’s view is more rosy than any other bullish analyst report you will read. Another consideration is that the lowest price target we saw in the Thomson/First Call universe was $7.00, and that the consensus (mean) target was $9.10. Analysts are greatly divided here, with almost 75% difference from the lowest price target to the new highest target.

One last consideration before thinking that this may be a fast elevator ride into the stratosphere is that both Nokia and Alcatel-Lucent have had a long history of problems and more than just a few disappointments. Integrating companies from France and Finland, along with all those global offices and operations, almost certainly will not come without some hiccups along the way.

OK, so you have been warned that the huge potential upside called for in Nokia (with Alcatel-Lucent) has some serious caveats. Argus sees great synergies and growth potential from the merger. Argus thinks that Nokia is now able to deliver comprehensive solutions from fixed and wireless networks to service providers and other carriers. Its ability to offer integrated solutions is also expected to be a powerful marketing tool for companies and carriers that are concerned about minimizing costs at the same time they have to maintain and improve the security on their networks.

There is something else to consider here. Nokia shares in New York trading actually have risen so far in 2016. They ended 2015 at $7.02, were valued at $7.38 prior to the call and closed at $7.16 after Friday’s drop of over 2% in the Dow, S&P 500 and Nasdaq alike.

A rival like Cisco Systems Inc. (NASDAQ: CSCO) closed at $23.62 on Friday, down a sharp 12.3% from the dividend-adjusted close of $26.95 at the end of 2015. When 24/7 Wall St. ran its bullish and bearish outlook for Cisco at the start of this year, its implied upside was for less than a 16% total return.

Another boost is that this is an all-stock transaction. That allows Nokia to not burden its balance sheet. Also, the combined Nokia/Alcatel-Lucent will have approximately €8.1 billion in net cash on its books, with a very attractive valuation.

Argus thinks one of the driving forces is that the market for wireless networks market has slowed. Under the new organization, Nokia will operate these five business groups:

• Mobile Networks
• Fixed Networks
• IP/Optical Networks
• Applications & Analytics
• Nokia Technologies

Even before Friday’s drop, there had been a 6% decline for the Argus Communications Equipment peer group. And Nokia’s shares fell by 11% in 2015, versus a 7% peer-group decline, while its American depositary shares fell 3% in 2014 and soared 105% in 2013 — more than doubling the 45% gain of the peer group.

Argus went on to say:

Nokia has undergone significant transformation, including exiting the mobile device business, and the acquisition of Alcatel-Lucent is the culmination of this transformation. In recent years, Nokia consolidated all ownership in the former Nokia Siemens JV; sold its once-invincible mobile device business to Microsoft; and divested its HERE (mapping) business to a consortium of German automakers. … Nokia has now become a leading player in IP Core, optical, and access networks. Nokia’s ability to deliver comprehensive and integrated solutions to public network operators and other carriers, in our view, optimally positions the company to build next-generation network architectures while expanding its existing business.

The all-stock transaction valued Alcatel-Lucent at €15.6 billion ($17.6 billion). Once all shares are acquired, the Nokia shareholder group pre-merger will own 66.5% of the combined outfit. The combined company will start with about 104,000 employees, down from 114,000 at the time of the mid-April announcement. Nokia also was said to have worked with the French government to protect roughly 7,000 French jobs. The combined company will be roughly the same size as Ericsson and Huawei on a revenue basis, and each of these three should command about 17% to 18% of the total communications service provider capital spend in hardware, software and services.

Speaking of the bumps along the way to the integration: Argus noted that not all of these revenues are equal in value. The Nokia wireless networks business integration is projected to result in loss of value on Alcatel-Lucent’s wireless access business. Potential opposition from workers councils regarding any planned layoffs in Europe is another risk. And for more risks, Argus said:

Alcatel never did achieve desired synergies from the combination with Lucent. Nokia must make hard choices on product rationalization, particularly on the wireless networks side; it will face similar challenges in creating an optimal go-to-market organization. If the communications infrastructure market were to slow meaningfully, Nokia would need to make massive cuts in plant and personnel.

Argus expects that total 2015 pro forma combined revenue would be about 10% to 11% lower than 2014 pro forma revenue of €24.7 billion, with much of that reflecting currency impacts. Argus went on to say:

Nokia estimates that the addressable market for the combined company will be about 130 billion euros, up 50% from 84 billion euros for Nokia alone. Management further believes that this market can grow at 3.5% CAGR for the 2014-2019 period, which is slightly faster than the forecast CAGR for stand-alone Nokia.

There will be room for more buybacks and dividends as well. Nokia previously suspended its €5 billion capital structure optimization plan from 2014, but in late 2015 Nokia’s new €7 billion capital plan was set with €4 billion in shareholder returns in buybacks and dividends and €3 billion in deleveraging. As part of its capital allocation plan, Nokia intends to pay a 2015 ordinary dividend of at least €0.15 per share and expects that its 2016 ordinary dividend will be at least €0.15 per share. Argus values these payouts to be about $0.17 for U.S. investors for each year.

So, how does Argus value Nokia post-merger? It’s complicated. Nokia currently is valued at 19.3 times Argus’s 2015 non-IFRS estimate and at 20.5 times its unrevised 2016 non-IFRS estimate, while the average two-year forward price-to-earnings (P/E) ratio is above the historical P/E of 16.5. The firm concluded:

Based on our unadjusted DFCF model, the Nokia ADRs are valued in the high-single to low-double digits. After factoring in our historical comparables valuation and applying a 15% country discount, we calculate a value of approximately $12 per ADR; the total return now also includes the current dividend yield of 2%. Our 12-month risk-adjusted total-return forecast for Nokia now exceeds our forecast total return for the broad market and is thus consistent with a Buy rating.

Note that rival Cisco Systems is valued at closer to 10 times its non-GAAP earnings estimates ahead.

24/7 Wall St. also wanted to see what else was in store for a combined Nokia/Alcatel-Lucent outfit via other recent research reports at competing firms. They were mostly positive as well ahead of the merger completion:

• Credit Suisse raised Nokia to Outperform from Neutral on December 1, 2015.
• BMO Capital Markets raised Nokia to Outperform from Market Perform on November 4, 2015.
• CLSA started Nokia as Buy on September 22, 2015.
• Deutsche Bank raised Nokia to Buy from Hold on September 21, 2015.
• Goldman Sachs already had a Buy rating but added Nokia to its prized Conviction Buy list on September 14, 2015.

So, now you know the most bullish research case for the combined Nokia and Alcatel-Lucent. In New York, the stock closed most recently at $7.16, within a 52-week trading range of $5.71 to $8.37.

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