For the most part, I’m a believer in Qualcomm (NASDAQ:QCOM) and QCOM stock. The last time I wrote about the company was in mid-September. I gave readers three reasons why I thought Qualcomm stock was a great buy on the dip from May 52-week highs. One of the reasons was that 5G is good for QCOM stock. I’m not alone in this assessment.
“The 5G rollout will spark multiple revenue streams,” InvestorPlace’s Josh Enomoto stated on Oct. 18.
“At the company’s September ‘Future of 5G Workshop,’ Qualcomm made it clear that 5G will change the definition of mobile services. And for investors in Qualcomm stock, that is a bullish sign,” said InvestorPlace’s Chris Markoch on Oct. 16.
“The 5G boom coming in 2020 and 2021 should increase demand for Qualcomm’s 5G chips. Second, a Qualcomm-powered 5G iPhone will also be a strong positive catalyst for QCOM stock,” InvestorPlace’s Luke Lango wrote on Oct. 14.
All three of these InvestorPlace contributors feel as I do that 5G is going to be a big deal for the company. However, it’s also safe to say that 5G is going to be a big deal for the entire wireless industry in general.
If you follow my InvestorPlace articles, you’ll know that I’m a big proponent of keeping your options open. Yes, Qualcomm is a player in 5G, but unless you’re Warren Buffett and can afford to go all-in on a small, focused basket of stocks, it pays to diversify.
For this reason, the average investor might be better off buying an ETF like the First Trust Indxx NextG ETF (NASDAQ:NXTG) instead. Here’s why.
Give a Little to Get a Little
I must admit it’s hard to go from being a big believer in Qualcomm to owning an ETF in which QCOM stock represents just 1.64% of the ETF’s $203.2 million in total assets, but sometimes discretion is the better part of valor.
It’s one thing to invest in Qualcomm because you love its free cash flow (I sure do) or its ability to generate licensing fees ($3.4 billion through the first nine months of its fiscal year), but if you believe 5G is going to be all that and a bag of chips, it makes sense to at least consider an investment vehicle that allows you to play the field rather than utilize a “winner take all” mentality.
In June, MarketWatch discussed how the powers that be at First Trust cast aside the ETF’s former smartphone focus to bet on 5G. According to the article, NXTG, which debuted on May 29, managed to gain $110 million in new assets in the first three weeks of its conversion from the First Trust Nasdaq Smartphone Index Fund.
First Trust’s old ETF traded under the symbol FONE. In existence for eight years, it only managed to accumulate $22 million in net assets, an average of $52,885 per week in new funds ($22 million divided by 416 weeks or eight years). By comparison, NXTG has managed to bring in $10.1 million per week through Oct. 18. If 5G is going to be a big deal, it’s hard to imagine NXTG losing much of its momentum.
Sure, the Defiance Next Gen Connectivity ETF (NYSEARCA:FIVG) provides investors with a pure-play 5G ETF option (the ETF was launched March 4, 2019). It has managed to raise almost $4 million per week over the first 30 weeks of its existence, but given First Trust’s stature as one of the biggest and best ETF providers in the country, I’d put my money on the established company.
Now, you could make the argument that FIVG is the better ETF because it only charges 0.30% while NXTG charges 0.70%, but I think you’ll see First Trust cut the fee in 2020 or 2021 if it keeps bringing in assets at the same pace it has achieved since launching at the end of May.
The Bottom Line on QCOM Stock
Do I think Qualcomm is a stock worth owning? Absolutely. If you can afford to ride out the volatility that comes with a stock like QCOM, I’ve stated several times in 2019 why I like its stock.
However, if you want to ride the 5G wave, NXTG, and to a lesser extent, FIVG, are a better way to play this change in the wireless industry. Remember, you’ve always got options.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.