One of the big investment themes for the coming decade is related to 5G. And this movement could mean great things for 5G stocks.
The global 5G services market is expected to grow at a constant annual growth rate (CAGR) of 43.9% between fiscal year 2021 and FY2027. Furthermore, the 5G infrastructure market is expected to grow at a CAGR of 29% through FY2026.
Looking at the broader picture, 5G is likely to enable $13.2 trillion in global economic output by FY2035. Given the growth potential, there will be attractive investment opportunities in the industry.
With all of that in mind, this column will discuss some of the lesser known 5G stocks that have made inroads in the industry. I believe that these 5G stocks have the potential to create value with a long-term investment horizon.
Therefore, let’s discuss the following attractive stocks:
Let’s dive into these three 5G stocks.
Lesser-Known 5G Stocks: Crown Castle International (CCI)
In an interesting podcast, Wharton’s Kevin Werbach and Jeffrey Reed from Virginia Tech opined the following:
“Telecom companies and other providers will have to invest billions to make 5G a reality — not only to buy more spectrum, but also to build out the infrastructure.”
Furthermore, with China outspending the United States on 5G network infrastructure, its likely that there will be a surge in infrastructure outlays.
That said, this makes Crown Castle International an interesting 5G stock to consider. The company has a portfolio of 40,000 towers, 70,000 small cells and 80,000 route miles of fiber.
So as 5G infrastructure spending ramp-up in the coming years, the company stands to benefit. In comparison, several major players like Verizon (NYSE:VZ), AT&T (NYSE:T) and T-Mobile (NASDAQ:TMUS) have already committed to build strong 5G networks in the coming years.
From a cash flow perspective, Crown Castle has $25 billion in contracted lease payment from top U.S. wireless carriers. In turn, this provides clear cash flow visibility in the coming years. This is an important point to mention as CCI stock currently has a forward dividend of $4.80. The current pay-out is likely to sustain and potentially increase in the coming years.
MKS Instruments (MKSI)
MKS Instruments is a provider of instruments, systems, subsystems and process control solutions.
Specific to growth driven by 5G, MKS Instruments sells equipment used in the manufacturing of chips coupled with components used in smartphones. As an example, the company is likely to benefit from increasing adoption of Flex PCB in 5G smartphones. Similarly, flex PCB systems will also benefit from demand related to 5G base stations.
The company’s President and CEO John Lee said the following during their first-quarter earnings conference call:
“Well, I think we certainly have long-term views of data centre and data economy-driven demands for some [indiscernible] as well as 5G-driven demands for not just the chips, but also the laser manufacturing processes. So I think I would say that long term, we’re still very, very bullish on data, data economy, and the need for 5G phones.”
Sure, the novel coronavirus driven crisis has impacted the pace of 5G adoption. However, in the coming decade, MKSI Instruments stands to benefit as 5G adoption is just at the “tip of the iceberg.”
Qorvo recognizes itself as the maker of technologies and products for wireless and wired connectivity. The relatively little-known stock stands to benefit from the 5G revolution in the coming years.
When the company reported Q4 2020 results, the demand for 5G handsets and infrastructure already had an impact on top-line growth. In terms of specific products, the company enabled the “sub-6 GHz 5G network deployments with the ramp of GaN power amplifiers and small signal solutions.”
In addition, the company supported Samsung Galaxy S20 platform with advanced 4G and 5G components. As the adoption of 5G enabled smartphones increases, the company stands to benefit.
It’s worth noting that the company’s market is not limited to smartphones. Qorvo has solutions for 5G infrastructure. In addition, the company is targeting the automotive segment for next-generation wireless technology adoption.
From a growth perspective, analyst estimates indicate that Qorvo’s earnings growth is likely at 10.3% on an annual basis for the next five years. Once the 5G market gains traction, earnings growth can potentially accelerate. This makes Qorvo stock attractive with a long-term investment horizon.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.