For investors looking to capitalize on the roll out of 5G telecommunications networks, Sweden’s Ericsson (NASDAQ:ERIC) stock looks like a smart buy. The company is building 5G networks around the world that are needed to run the next generation of smart phones, tablets, computers and the Internet of Things (IoT). And 5G holds a lot of promise with potential download and upload speeds that are 10 times faster than current 4G LTE networks.
The worldwide 5G market is forecast to explode in the next five years, growing from $5.53 billion in 2021 to $667.90 billion by 2026, according to Allied Market Research. If Ericsson can even get a small share of the 5G market, it could give a huge boost to the company and its shareholders of ERIC stock.
Growth in China
Right now, Ericsson’s 5G work is concentrated largely in China, where the company is helping major wireless providers such as China Mobile (NYSE:CHL) get their networks up and running and assisting with the creation of several smart cities that are Internet connected. China’s smart city initiative, which the government in Beijing is fully behind, is forecast to be worth more than $3 trillion by 2022.
While operating in China is not without risks, indications are that Ericsson is successfully navigating the country’s business environment and doing well with its 5G roll out. The company currently has contracts in place with all three of China’s major wireless carriers, including China Mobile, and its broad presence across the world’s most populous country gives Ericsson scale in what is currently the largest 5G market on the planet. Going forward, Ericsson is well-positioned to continue capitalizing on China’s rapid 5G adoption.
Outside of China, Ericsson is making headway with its 5G networks in other countries. The company is currently building 5G infrastructure in countries ranging from Spain to South Korea. In Switzerland, Ericsson has built networks that now have 98% of that country’s population covered by 5G. In the U.K., Ericsson is helping the British government implement a 5G strategy designed to help the country survive and thrive in a post-Brexit world after it leaves the European Union.
Stateside, Ericsson has agreed to buy U.S. wireless networking firm Cradlepoint for $1.1 billion. The deal, which was Ericsson’s biggest in a more than a decade, gives the company access to tools that can connect electronic devices to the Internet of Things (IoT) over 5G networks. Cradlepoint, which will become a subsidiary of Ericsson, specializes in routers. The acquisition is expected to close by year’s end.
Ericsson’s last major deal occurred in 2007, when it bought data network equipment vendor Redback Networks for $2.1 billion. Additionally, the U.S. Department of Defense (DoD) has selected Ericsson to test 5G networks at several military installations across the country.
Why You Should Buy ERIC Stock
Ericsson’s stock price has nearly doubled this year, rising 98% from a March low of $6.17 a share to a high of $12.01. While ERIC stock has since pulled back with September’s market downturn, it remains up 75% from its spring bottom at $10.82 per share.
At its current price, the stock remains affordable and shows potential for sizable gains over the next year. The consensus view of 25 analysts who cover the company is for the share price to appreciate another 13% and reach $12.28 a share over the next 12-months. The high price target on the stock is nearly $15 a share.
If 5G connectivity is the future (and, by all accounts, it is), then Ericsson is set-up nicely to capitalize on the changeover to next generation Internet and telecommunications. The company is lining up contracts all over the world to build the networks needed to successfully operate 5G. And Ericsson is making strategic acquisitions to ensure that it can deliver on 5G and stay ahead of its competitors in the space. At $10 a share, ERIC stock looks like an attractive way for investors to gain exposure to the explosive growth of 5G networks.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.