Just a few months ago, 5G was the market catalyst on every investor’s mind. But when the novel coronavirus started to grab the headlines, the promise of a revamped mobile network took a backseat. To be sure, coronavirus news appears to be leading the charge when it comes to movement on the stock market. That being said, however, choosing a few 5G stocks to buy during this downturn is a good way to hedge for the future.
The beneficiaries in the 5G space come from many different areas. From network providers to chipmakers, there are a lot of sectors that look poised to profit from the introduction of 5G.
With all of that in mind, here’s a look at five companies that should ride the 5G wave this year:
- Skyworks Solutions (NASDAQ:SWKS)
- AT&T (NYSE:T)
- Nokia (NYSE:NOK)
- Crown Castle (NYSE:CCI)
- Apple (NASDAQ: AAPL)
So, let’s dive in.
5G Stocks to Buy: Skyworks Solutions (SWKS)
One of my favorite picks for 5G is Skyworks Solutions, a semiconductor firm headquartered in Irvine, California.
The firm suffered some coronavirus-related pain when it released its fiscal second-quarter results. Like the rest of its peers, management had to downshift its expectations for the current quarter and was unable to offer long-term predictions.
However, Skyworks Solutions does in fact have a bright long-term future. While tension between the U.S. and China does offer a potential roadblock, Skyworks’ business with Huawei has been hurt by the trade war which could continue to weigh on the firm’s future revenue. That said, if Skyworks is able to secure a deal with Samsung to supply the phone maker with 5G chips, it could help offset some of the Huawei pain. Additionally, Skyworks also has a solid relationship with Apple, which should continue to pay off as the firm rolls out new iPhone versions.
Plus, Skyworks is carrying no long-term debt and has cultivated a sound cash pile. That’s going to be essential for the firm to get through the coronavirus crisis during the current quarter, and makes SWKS stock a much safer investment than some of its heavily-leveraged peers.
Another beneficiary of the 5G revolutions is T stock. AT&T has an impressive future plan that could put the telecom giant at the top of the pack if management is able to execute. The firm’s wireless business has been booming, even offering a revenue increase in the first quarter despite the pandemic.
As far as future growth, the firm is banking on a huge 5G rollout this summer, at which time current customers are likely to buy new devices in order to access the faster speeds. Plus, AT&T is finally putting its strategic acquisitions to good use with a new streaming service –HBO Max — that launched this past Wednesday.
Moreover, the firm has said 5G is “transforming the future” — likely a nod to the firm’s extensive plans to create an ecosystem in which customers can bundle their streaming service together with their wireless network. The advertising potential from that kind of ecosystem is incredible.
So while AT&T offers a compelling buy-case, it’s important to note that the firm is highly leveraged after the past few years of transforming itself. In turn, this is not the best-case scenario when you’re marching into a stark economic downturn. However, if you’re willing to take on that risk, T stock looks like one of the best 5G stocks to buy.
Nokia has had a rough year, as the firm muddled its way through the U.S.-China trade war and was then hit once again by the coronavirus pandemic. It’s been a long time since investors were confident in the direction of NOK stock. But with the introduction of 5G on the horizon, Nokia looks like it could be a winning supplier.
Nokia’s first-quarter results were impressive, as the firm brokered 70 commercial 5G deals and installed 21 live networks. What’s more, the firm didn’t see demand wane at all in Q1 despite the challenges presented by coronavirus. Q2 is a different story, though, as CEO Rajeev Suri cautioned that the large-scale shutdowns would have an impact on the company’s results. However, it’s expected to make a solid recovery and finish the year strong.
Moreover, Raymond James analyst Simon Leopold says Nokia offers the potential of better returns because of its depressed share price. Although, he admitted it’s not quite as safe as competitors like LM Ericsson (NASDAQ:ERIC):
“I do think that Ericsson has executed better and is ahead in technology and therefore is a better company for 5G. Nokia has made mistakes, and they’ve upset customers and they’re behind. That said, I think an investor can make a bigger return investing in Nokia than in Ericsson…But we like both of these companies because of the 5G theme.”
That said, Leopold gives NOK stock a $5.50 price target — suggesting a nearly 40% upside from where shares are trading today.
Crown Castle (CCI)
Tower REITs that rent out the infrastructure and space that wireless firms need to roll out a new network are another way to capitalize on 5G stocks. And while there are a few players in the industry, Crown Castle has a compelling value proposition because of its position in the U.S. market.
Oppenheimer’s Timothy Horan named CCI stock as a good 5G pick, fining the firm an “outperform” rating with a $175 price target. Horan noted that CCI is uniquely positioned because of the firm’s focus on small cells, which are able to support more data.
He sees the market for small cells growing from 100,000 to 1 million in the US, a compelling reason to consider CCI stock:
“We expect small cells will eventually cover half the U.S. population, or 160 million people. This would be more than 1 million small cells in the U.S., up from about 100,000 today and about 250,000 macro cell sites.”
Buying Apple stock isn’t exactly a pure-play on the 5G revolution, but it offers investors a way to play the trend without jumping in headfirst. Apple stands to make a lot of money in the coming years as people upgrade their devices in order to make them 5G compatible. That said, Apple’s upcoming iPhone model is expected to see a surge in demand as early adopters switch out their phones.
Additionally, Apple has created a recurring revenue model that allows people to pay a subscription fee in order to continuously upgrade their phones. This method is a good way to ensure there’s always money coming through the door. And with that, the leap from 4G to 5G is going to be a compelling reason for more people to sign up for the program.
However, if 5G isn’t the boom investors are expecting it to be, Apple is a safe pick because of its solid business and iron-clad financials. The company has enough cash to get through almost anything, which should give investors some comfort during uncertain times. Therefore, it makes the cut among 5G stocks because the new network will offer a powerful incentive for users to upgrade their phones over the next few quarters.
Laura Hoy has a Finance degree from Duquesne University and has been writing about financial markets for the past 8 years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN. As of this writing she did not hold a position in any of the aforementioned securities.