To understand 5G is to understand that the “G” stands for generation. Like the previous generations that came before it, 5G promises to enhance the way consumers and businesses experience the internet. Yes, 5G will certainly deliver faster connection speeds. But I wouldn’t be nearly as excited about this technology if it simply meant I could download a movie in seconds instead of minutes.
Where 5G offers the most intriguing benefit is in the way it promises to enhance our increasingly connected future. Autonomous cars, industrial automation, augmented reality (AR) and virtual reality (VR) will all be transformed by the increased speed and reduced latency of a 5G network.
One of the exciting aspects of 5G is the many ways investors can profit. There is an infrastructure being built to support the roll-out of this technology. It can’t just use the existing cell phone towers. There are also chips that have to be created to support mobile devices. The 5G revolution will also benefit software providers. And then, of course, there are the wireless providers who will be introducing 5G phones and tablets sometime in 2020.
Here’s the rub. The build-out of a 5G infrastructure is behind schedule. And some industry experts are suggesting the real growth from 5G may not come until 2021. But there’s no question that the infrastructure is being built now. And we’ve selected some stocks that look like they don’t already have the growth of the stock factored in.
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- Applied Materials
- Crown Castle International
- Intel
- Qualcomm
- Ericsson ADR
- Cisco Systems
- VMware
- AT&T
#1 - Applied Materials (NASDAQ:AMAT)
Applied Materials - Semiconductor chips are the engines that will power 5G devices. And that power will allow those devices to deliver data 10 times faster than 4G networks. With that in mind, it would make sense to invest in the company that helps build the engines. And that brings us to Applied Materials (NASDAQ:AMAT). Semiconductor companies are already racing to build the next generation of chips to support 5G. And that puts AMAT in an ideal position to capitalize.
For investors who put a value in such things, Applied Materials is the leading semiconductor fabrication tool supplier. And analysts believe that the company’s revenue will increase by 12.5% year-over-year in 2020. This would virtually erase the 13% drop in the company’s top line in fiscal 2019. As evidence of this turnaround, the company is forecasting a 9% increase in sales for the current quarter ($4.1 billion vs. $3.75 billion) on a year-over-year basis.
And the gains from 5G do not appear to be factored into the AMAT stock price which is trading at 16 times forward earnings estimates.
About Applied Materials
Applied Materials, Inc engages in the provision of manufacturing equipment, services, and software to the semiconductor, display, and related industries. The company operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. The Semiconductor Systems segment develops, manufactures, and sells various manufacturing equipment that is used to fabricate semiconductor chips or integrated circuits.
Read More - Current Price
- $162.56
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 6 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $220.29 (35.5% Upside)
#2 - Crown Castle International (NYSE:CCI)
Crown Castle International (CCI) - Crown Castle International (NYSE:CCI) is a real estate investment trust (REIT) that owns and leases much of the cellular infrastructure that enable mobile data traffic and access to the internet from mobile devices.
As I mentioned in the introduction, the current cellular infrastructure will not be sufficient to support 5G technology. One example is the small cell towers that will have to connect to streetlights, buildings, or poles that supplement a cell tower. And one of the key areas that CCI invests in is the small cell towers.
This is significant because small cell towers address the one limitation of 5G technology. The tradeoff for getting an ultrafast connection is that the connection has a very limited range. This means that there will need to be a massive amount of small cell towers throughout the country. CCI leases out 65,000 of these small cell towers.
So far in 2020, CCI stock is up over 5%, and has risen over 31% in the last twelve months. But beyond this organic growth, CCI is also a great dividend stock. The company has delivered 5 consecutive years of dividend growth. And because the company is a REIT, it pays at least 90% of its earnings to shareholders as dividends.
About Crown Castle
Crown Castle owns, operates and leases more than 40,000 cell towers and approximately 90,000 route miles of fiber supporting small cells and fiber solutions across every major U.S. market. This nationwide portfolio of communications infrastructure connects cities and communities to essential data, technology and wireless service - bringing information, ideas and innovations to the people and businesses that need them.
- Current Price
- $89.78
- Consensus Rating
- Hold
- Ratings Breakdown
- 3 Buy Ratings, 10 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $117.00 (30.3% Upside)
#3 - Intel (NASDAQ:INTC)
Intel (INTC) The 5G revolution go beyond what they will mean for mobile devices. This new technology will increase the demand for data centers and companies involved in the internet of things (IoT). Intel (NASDAQ:INTC) is positioned well in both of these spaces.
Intel has been an interesting story for those that believe an old dog can learn new tricks. Since 2016, Intel has done what a good investor does, diversify. As a result, the company is less dependent on its core PC business, which is getting a little long in the tooth. In fact, by 2021, the company estimates the weight that PCs carry in their business will decrease nearly 60% from 2017.
And while investors had to be patient, their patience seems to have been rewarded. Intel is beginning to post impressive data center growth which should only increase as the 5G roll-out continues. And despite the pivot in their business, Intel remained a reliable dividend stock. The company’s current dividend yield is around 1.8% and, spurred by growth from 5G, the company should be in a position to increase its dividend in the next few years.
About Intel
Intel Corporation designs, develops, manufactures, markets, and sells computing and related products and services worldwide. It operates through Client Computing Group, Data Center and AI, Network and Edge, Mobileye, and Intel Foundry Services segments. The company's products portfolio comprises central processing units and chipsets, system-on-chips (SoCs), and multichip packages; mobile and desktop processors; hardware products comprising graphics processing units (GPUs), domain-specific accelerators, and field programmable gate arrays (FPGAs); and memory and storage, connectivity and networking, and other semiconductor products.
Read More - Current Price
- $19.90
- Consensus Rating
- Reduce
- Ratings Breakdown
- 1 Buy Ratings, 25 Hold Ratings, 5 Sell Ratings.
- Consensus Price Target
- $30.04 (50.9% Upside)
#4 - Qualcomm (NASDAQ:QCOM)
Qualcomm (QCOM) With friends like Apple (NASDAQ:AAPL), Qualcomm (NASDAQ:QCOM) doesn’t need enemies. But it appears that the two companies have put aside their very public spat that had investors questioning if Qualcomm would be providing modems for Apple’s iconic iPhone. And let’s face it that is a major tailwind for QCOM stock in 2020.
Apple got unexpectedly strong sales for its iPhone 11 Series. But the real boom is going to come from 5G. Consumers will not be able to access the benefits of 5G on their mobile devices without a phone that is equipped to connect to 5G. And unlike the transition from 3G to 4G, this transition will require them to get a new device.
Qualcomm will be providing the modems for this new generation of iPhones. And in December 2019, Qualcomm’s president Cristiano Amon emphasized that launching Apple’s first 5G phone “as fast as we can” is the company’s top priority.
There is some concern that the stock, which jumped 90% in 2019, may already reflect the majority of the growth from 5G. And Apple may still develop an in-house solution that would be damaging to Qualcomm. However, a significant portion of the 5G growth is happening now and Qualcomm is in a position to see its stock price jump.
About QUALCOMM
QUALCOMM Incorporated engages in the development and commercialization of foundational technologies for the wireless industry worldwide. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on 3G/4G/5G and other technologies for use in wireless voice and data communications, networking, computing, multimedia, and position location products.
Read More - Current Price
- $153.91
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 14 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $208.00 (35.1% Upside)
#5 - Ericsson ADR (NASDAQ:ERIC)
Ericsson ADR (ERIC) - Network upgrades are another area that will require an upgrade to accommodate 5G technology. Investors have another best-in-class option with Ericsson ADR (NASDAQ:ERIC). The Swedish-based company is currently partnering with TDC to launch the first 5G network in Denmark. This could be the test case for other 5G networks around the globe.
One thing that makes Ericsson attractive is that it is priced under $8 per share. From a trading perspective it is approaching the lower end of its 52-week low ($7.58) and has some room to go before hitting its 52-week high ($10.46). But the stock gave up much of the prior 3-month gains when it posted disappointing earnings.
That is not discouraging some analysts. In fact, Citi analyst Amit Harchandani said he expects consensus 2020 EBIT to move lower by 5%-10% on the higher operating expenditure.
“While a weaker quarter was widely anticipated...we would be buyers of any sustained weakness as we see multiple reasons for optimism beyond the headline metrics.”
About Telefonaktiebolaget LM Ericsson (publ)
Telefonaktiebolaget LM Ericsson (publ), together with its subsidiaries, provides mobile connectivity solutions for telcom operators and enterprise customers in various sectors in North America, Europe, Latin America, the Middle East, Africa, North East Asia, South East Asia, Oceania, and India. It operates in four segments: Networks; Cloud Software and Services; Enterprise; and Other.
Read More - Current Price
- $8.09
- Consensus Rating
- Sell
- Ratings Breakdown
- 0 Buy Ratings, 1 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $6.70 (17.2% Downside)
#6 - Cisco Systems (NASDAQ:CSCO)
Cisco Systems (CSCO) - Cisco (NASDAQ:CSCO) is another example of a company that has reinvented itself. The former hardware intensive company has pivoted to a software-as-a-service (SaaS) model. This puts it in a sweet spot to support the growth in artificial intelligence and IoT applications that will come with 5G technologies.
Cisco hardware and software will be used to protect connections and networks. The company is looking to build off its best fiscal year in 5 years (relative to sales and net income). Plus the company recently unveiled its Cisco 5G Power x. According to the company, this is an architecture that can used by any cellular, Wi-Fi, or internet protocol.
And Cisco is coming its strongest fiscal year in recent years and is displaying strong financials. The company’s adjusted earnings per share (EPS) has grown over sevenfold since dipping below $10 in 2002. The company also has a digestible P/E ratio of 19.4 (at one point it was over 200).
About Cisco Systems
Cisco Systems, Inc designs, manufactures, and sells Internet Protocol based networking and other products related to the communications and information technology industry in the Americas, Europe, the Middle East, Africa, the Asia Pacific, Japan, and China. The company also offers switching portfolio encompasses campus switching as well as data center switching; enterprise routing portfolio interconnects public and private wireline and mobile networks, delivering highly secure, and reliable connectivity to campus, data center and branch networks; wireless products include wireless access points and controllers; and compute portfolio including the cisco unified computing system, hyperflex, and software management capabilities, which combine computing, networking, and storage infrastructure management and virtualization.
Read More - Current Price
- $58.63
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 10 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $60.28 (2.8% Upside)
#7 - VMware (NYSE:VMW)
VMware (VMW) VMware (NYSE:VMW) is a software developer that is a leader in the emerging hybrid cloud. This is software that will allow carriers to run on multiple networks at the same time on the same hardware.
One of the key phrases in the hybrid cloud model being adopted by VMware is “open source technology.” IBM (NYSE:IBM) became the undisputed leader in open source container applications with its expensive $34 billion purchase of Red Hat in 2019. This gave IBM access to Red Hat’s OpenShift Kubernetes platform. VMware’s response is a $2.7 billion purchase of Pivotal Software. This is a move that VMware CEO Patrick Gelsinger said gives the company better assets for far less cost.
VMware is projecting year-over-year earnings growth between 3% and 6% in 2020. That would be welcome news to investors who are watching a stock that has dropped 25% from its 52-week high set in May 2019. But so far, 2020 has brought a lack of clear direction. Instead of participating in the market melt up like other tech stocks, VMW shares are down about 5% since the start of the year. And much to the chagrin of some traders, the stock is struggling to push above a support level at $150.
About VMware
VMware, Inc provides software solutions in the areas of modern applications, cloud management and infrastructure, networking, security, and workspaces in the United States and internationally. It offers VMware multi-cloud solutions, including VMware vSphere, a data center infrastructure that provides the fundamental compute layer; and vSAN and VxRail, which offers holistic data storage and protection options to applications running on vSphere; as well as VMware Cloud Foundation, a cloud platform that combines its vSphere, vSAN, and NSX with VMware Aria Cloud Management into an integrated stack that delivers ready cloud infrastructure for private and public clouds.
Read More - Current Price
- $143.00
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#8 - AT&T (NYSE:T)
AT&T (T) Finally, we get to the companies that will be putting 5G technology in the consumer’s hands. For me, aside from Apple which is an entity unto itself, comes down to AT&T (NYSE:T) and Verizon (NYSE:VZ). At this point, I give the nod to AT&T.
This is because what some analysts see as a weakness for the stock, I view as a strength. With the acquisition of content from Time-Warner, the company will be entering the streaming wars. Critics will say that with DirecTV the company is entrenched in a dying industry. And with Time-Warner they are arriving late to the game with a streaming product that will not have the content consumers want.
But the one thing both of these acquisitions give AT&T is a degree of stickiness. A consumer can bundle wireless service, DirecTV, and (in select markets) home internet. Now they add the ability to deliver streaming content. This is a tactic already being used by Disney (NYSE:DIS) and Apple. Inertia is a funny thing and AT&T seems to be building a moat that will make customers think twice about switching.
About AT&T
AT&T Inc provides telecommunications and technology services worldwide. The company operates through two segments, Communications and Latin America. The Communications segment offers wireless voice and data communications services; and sells handsets, wireless data cards, wireless computing devices, carrying cases/protective covers, and wireless chargers through its own company-owned stores, agents, and third-party retail stores.
Read More - Current Price
- $22.57
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 7 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $25.53 (13.1% Upside)
According to the research firm Gartner, 5G wireless infrastructure will increase to $4.2 billion in 2020. So even if the next generation of phones doesn’t arrive on schedule, the 5G train has left the station. And that means there’s plenty of opportunity for investors both in 2020 and beyond.
If you take nothing else from this presentation, it should be this. 5G is not a bubble. It’s not a trend. It’s an inevitable evolution. To paraphrase a cliché, it’s become too important to fail. I’ve seen “5G” pop up on my phone when I’ve traveled to a number of cities.
This means the infrastructure is already here, if only on a limited basis. And that infrastructure is moving from the outside in – as in the palm of your hand.
Many of these companies will be delivering (or have already delivered) earnings. When analysts get a chance to digest those numbers, the big money may start to make these stock prices look less attractive. And when that happens, it may be too late. That’s why it’s important that you act now.
And remember, as a MarketBeat member, you’ll be able to get instant alerts on news that affects the stocks you’re either investing in or have on your watch list.
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