Sweden’s Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC) is a world leader in 5G infrastructure deployment. That alone makes ERIC stock a strong play. After all, 5G is probably the single hottest thing in tech these days. Despite factors that had the potential to derail 5G investment in 2020 — namely a global pandemic — shares in Ericsson have gained around 33% this year.
ERIC is currently off its 2020 high by close to 7%. Does that make it a buying opportunity? It currently has a “B” rating in my Portfolio Grader. It’s not entirely without risk, but based on how closely its current performance is tied to global 5G adoption, Ericsson stock definitely has its appeal.
The 5G Contracts Keep On Coming
Concerns that the novel coronavirus pandemic would slow investment in 5G infrastructure have not panned out in 2020. Ericsson has noted that there have been some pandemic-related delays in the African and Latin American markets. But elsewhere, providers continue to invest — especially in the North American and Chinese markets.
The company doesn’t seem worried about China’s Huawei, a formidable 5G competitor. On its website, Ericsson points out that when Huawei first began to emerge as a competitor in the cellular infrastructure market, ERIC held 33% of the global market. Today, the company claims a 43% global share. Government bans in multiple countries (led by the U.S.) against using Huawei technology have definitely helped out on that front.
On Aug. 12, Ericsson celebrated inking its 100th commercial 5G contract. When I wrote about ERIC at the start of October, the company claimed to have 109 commercial 5G contracts. As of today, the count is up to 116.
And don’t forget, infrastructure deployment isn’t Ericsson’s only skin in the 5G game. Thanks to its patents, every time a hot new 5G smartphone is sold, the company gets a cut.
Cradlepoint Deal Closing
On Nov. 2, Ericsson closed its acquisition of U.S. wireless wide area network (WAN) market leader Cradlepoint. This has the potential to be a big deal, expanding the company’s enterprise footprint.
Ericsson described the addition in a press release announcing the closing of the deal:
“Through Cradlepoint’s solutions, companies can connect sites, vehicles, mobile workforces, and IoT devices in a simple and secure way using cellular technology. By leveraging the combined offering, Ericsson will be able to create valuable new revenue streams for its customers by supporting 5G-enabled services for enterprise, and boost returns on investments in the network.”
ERIC didn’t incur any debt, instead paying the $1 billion price using cash-on-hand.
Warning Signs for ERIC Stock
While much of Ericsson’s business — especially anything related to 5G — appears to be on solid footing, the company does have a few soft spots investors should be aware of. In particular, in its Q3 earnings report, ERIC pointed out that legacy revenue is currently dragging:
“… sales in our legacy portfolio is declining faster than earlier predicted. In the short term, this shortfall will not be compensated by the growth in new offerings and therefore our sales volume is lower than expected.”
In addition, cellular operator consolidation in the U.S. market led to a drop in managed services revenue.
The Bottom Line
Investment analysts like Ericsson. In particular, they like its position in the global race to build out 5G infrastructure. That is an ongoing process, with no end in sight. There are risks in that market, including the potential for recession and competition from Chinese firms like Huawei. However, Ericsson has continued to grow its lead in the market. Its recent acquisition of Cradlepoint also expands the company’s presence in the enterprise 5G market.
At the same time, ERIC stock is affordably priced. An inexpensive point of entry, solid growth over the past three years, and the prospect of 5G-fueled growth continuing for the foreseeable future — there’s a reason why Ericsson consistently makes lists of attractive 5G tech stocks.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.