When thinking about 5G wireless tech companies, the customer-facing carriers become the most obvious choices. They will typically look to an AT&T Inc. (NYSE:T) in the U.S. or a China Mobile Ltd. (ADR) (NYSE:CHL) as a way to invest in this emerging telecom revolution.
However, 5G embodies not only carriers. Providing speeds at 100 times current levels requires an extensive infrastructure unseen by end users. Providing this level of connectivity involves the use of equipment to carry the signal. Moreover, 5G requires “vertical real estate,” namely towers, tall buildings, and other high structures to help reach billions of computers and devices would also fall into this category.
Finally, it includes data centers to process the ever-growing volume of information. These companies offer investors an excellent opportunity to profit from the infrastructure of 5G.
5G Stocks to Buy: Nokia Oyj (ADR) (NOK)
Many remember Nokia Oyj (ADR) (NYSE:NOK) as the most popular provider of cell phones before the iPhone from Apple Inc. (NASDAQ:AAPL) ushered in the smartphone era and pushed Nokia aside. This took its stock from almost $40 per share down to the $2 per share range. Today, the company has reinvented itself as an equipment provider and now trades at just under $6 per share. It serves as an innovator in developing 5G cloud and transport hardware. Nokia now competes with companies such as Ericsson (NASDAQ:ERIC), Samsung Electronics Co Ltd (OTCMKTS:SSNLF) and Huawei Technologies Co., Ltd. to deliver this RF innovation.
In January, Nokia, along with T-Mobile US Inc (NASDAQ:TMUS) and Intel Corporation (NASDAQ:INTC) teamed up to conduct field tests on Nokia 5G equipment in suburban Seattle. The company also performed tests this month in Japan and Finland to test their 5G equipment for the Internet of Things (IoT), self-driving car and manufacturing applications.
This 5G testing has NOK stock poised to return to a growth path. The company now trades at a forward P/E of 15. Consensus earnings estimates for 2018 stand at 29 cents per share. By 2020 income is expected to grow to 50 cents per share.
And while these profits rise, investors can enjoy a dividend yield of about 4%. Although dividends have moved up and down over the last few years, its current annual dividend of 24 cents per share appears sustainable. It will also pay investors to wait while NOK stock returns to its position of prominence.
5G Stocks to Buy: American Tower Corporation (AMT)
Chances are, your current 4G smartphone receives a signal coming from a tower. That structure might be owned by American Tower Corp (NYSE:AMT). Because 5G depends on a vast network of cells that are smaller and lower to the ground, customers will connect directly with towers less often. However, since many of the smaller cells will need to communicate with towers, these tall structures will more often serve as the backbone of wireless networks. Moreover, many short towers that offered little value in the 4G world could become critical nodes with 5G.
American Tower, along with peers Crown Castle In/SH SH (NYSE:CCI) and SBA Communications Corporation (NASDAQ:SBAC) control the majority of towers, with American enjoying about 50% market share in the U.S. The company owns about 155,000 sites in 16 different countries.
American also acts as a real estate investment trust (REIT), so by law, it must return 90% of its profits to shareholders in the form of dividends. Since becoming an REIT, the dividend has grown steadily. It now pays a dividend of $3 per share, translating into a yield of about 2.1%. Income increases have averaged over 12.5% per year over the last five years. Revenues have improved even more, averaging 18.3% growth in the same period. With a 5G ramp-up in the works, that growth should continue. The dividend will likely grow along with it.
With a price-to-earnings (P/E) ratio exceeding 50, much of the growth has been priced into the equity. While that may appear expensive to more conservative investors, the P/E rarely falls below 50 with AMT. Also, AMT stock remains cheap compared to CCI and SBAC.
5G Stocks to Buy: Advanced Micro Devices (AMD)
Advanced Micro Devices, Inc. (NASDAQ:AMD) built its reputation as the archrival to Intel during the PC era. The rivalry has now moved on to data centers.
Data centers provide a critical component to 5G networks. Due to the large amount of data that 5G will generate, data centers that are centralized and massive will become less feasible. These technologies require data centers to become smaller and more numerous and operate in locations closer to towers. Hence, the ever-increasing need for data centers will receive yet another growth catalyst.
Intel currently dominates the data center space. In an earlier time, I probably would have recommended Intel as the data center play. I do not believe EPYC, AMD’s data center solution, will achieve a higher market share than the Intel Data Center Manager. However, the EPYC processor has generated interest from the likes of Hewlett Packard Enterprise Co (NYSE:HPE) and Dell. Large customers such as these should help EPYC carve out a niche.
Also, most tech analysts expect 5G will also increase the demand for graphics chips. AMD’s Radeon graphics chips now rival processors built by Nvidia Corporation (NASDAQ:NVDA). Hence, AMD stock serves as a 5G play from more than one perspective.
Currently, AMD stock trades at 25 times forward earnings. Analysts expect profits to grow by more than 50% per year over the next two years. Despite this growth, the stock lost more than 30% of its value due to the reduced interest in mining cryptocurrencies, another large AMD business line. This lower price allows buyers to purchase AMD stock at a relative bargain.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.