Investors are analyzing which 5G stocks to buy, as the 5G era is ushered in and supplants 4G broadband cellular networks. One key concern is that the fifth generation of broadband will introduce new security threats that will need to be addressed before consumers are willing to embrace the advance.
According to one poll, 94% of industry experts expect security concerns to increase with the spread of 5G, meaning that operators need to be proactive in addressing the potential security concerns to prevent problems before they occur.
5G security weaknesses could lead to problems that manifest in a seemingly limitless variety of ways. But the basic premise is that hackers access info with the potential to gain control of something. Such hacks could manifest themselves as simple info hacks, to the ability to control vital infrastructure or worse.
It’s also important to remember that security threats plague each generation of broadband and they aren’t going anywhere. A concerted effort across operators will be the best way forward to protect consumers. Here are some of the stocks in 5G which are best poised to do so.
- Qualcomm (NASDAQ:QCOM)
- Skyworks Solutions (NASDAQ:SWKS)
- American Tower REIT (NYSE:AMT)
- Ciena (NYSE:CIEN)
- Global X Internet of Things ETF (NASDAQ:SNSR)
- Qorvo (NASDAQ:QRVO)
- Cisco Systems (NASDAQ:CSCO)
5G Stocks To Buy: Qualcomm (QCOM)
Qualcomm was integral to the rollout of both 3G and 4G. Therefore, it should be no surprise that it will be a leading name in 5G as well. And Qualcomm’s research has delivered some interesting predictions regarding what 5G will mean in economic terms.
The company predicts that the full economic effects of 5G will be realized by 2035 and could account for $13.1 trillion in global economic output at that time.
Qualcomm also estimates that 5G will produce 22.8 million new jobs in 2035. Numbers like these remind us why investors are eager to find the right 5G play: there is simply a lot of growth to be had. Of course that growth requires security within 5G networks.
Operators are developing security solutions across three broad areas: mobile broadband, mission-critical communications, and the Internet of Things (IoT). Qualcomm’s security platform is called Snapdragon and it combines hardware and software solutions, often with biometric security features. One such feature protects user image data with eye-scanning technology.
Analyst stock price targets range as high as $200 for QCOM stock, well above its current $152 price. Now certainly looks like a good time to buy in for a play on 5G security.
Skyworks Solutions (SWKS)
Skyworks Solutions’ Sky5 platform is focused on mobile broadband and IoT as well as mission-critical communications. The Sky5 platform was awarded the ‘Commercial 5G Solution of the Year’ by Mobile Breakthrough in 2019. The company primarily makes high performance analog semiconductors which will of course be part of so many 5G technologies.
Investors should consider SWKS stock from a fundamental financial perspective as well. The company has proven its financial strength as measured by its capital allocation. The company clearly utilizes capital efficiently with weighted average cost of capital of 7.75% and a return on invested capital of 22.09%.
Companies that have a WACC that is lower than ROIC should be a red flag from an investment perspective in most cases. This is equivalent to investing a dollar and receiving less than a dollar in return. In corporate terms it’s called value destruction, and it is to be avoided in most cases. The point here is that Skyworks Solutions has proven itself to be value creating, making it investment grade.
As well, Skyworks Solutions carries a price-to-earnings ratio which is in the 50th percentile of industry peers. The trend toward overvaluing companies these days will lead to a market correction sooner or later. Skyworks is fairly valued. Undervalued stocks can be tempting, but they can also remain underappreciated and not rise. Skyworks Solutions remains a happy medium.
American Tower REIT (AMT)
The 5G revolution isn’t only about investing in semiconductors, phone manufacturers and mobile carriers. There is also the matter of infrastructure. This is a broad area, but as you likely guessed from the name, American Tower REIT deals with cell phone towers.
American Tower is very clearly looking to establish itself as the premier player in this vertical of the 5G infrastructure industry. The company recently announced that it has acquired InSite Wireless Group which plays well in its ‘5G densification efforts’. The company has more than 40,000 broadcast towers, making it the largest portfolio of such assets in the U.S.
The $3.5 billion acquisition is anticipated to immediately bring $150 million in revenue and $115 million to AMT stock’s bottom line in 2021.
The company is also quite profitable from an ROE perspective. ROE measures how much of a company’s net income is attributable to shareholders. American Tower is among the top 1.5% of REITs in this measure.
If you want to be sure your money is actually being used to generate profits, ROE is an excellent gauge. If you want a play on 5G that ticks that box, AMT stock is it.
Before getting into more detail about Ciena, it should be noted that Wall Street likes this company. Of the 19 analysts who have coverage of it, 13 rank it a buy. That doesn’t mean it’s a slam dunk, but it does indicate that CIEN stock has a good chance to appreciate in price.
Ciena provides network and communication infrastructure. The company focuses on open and adaptable methods by which to build networks. The company is very much against vendor lock-ins which limit the development of networks. As the company’s website states: “It’s time the vendor ecosystem delivered the innovations that match the aspirations of the network operators’ end-users, both humans and machines.”
The company also hints at de-risking through its solutions. Ciena was speaking to the risk of being locked into a network of vendors which can’t fulfill all of a given company’s needs, but there’s another piece to this equation: security risks. By having more vendors there is greater diversification which inherently lowers risk.
That makes CIEN stock worth considering aside from analyst sentiment in a security threat rich world.
Global X Internet of Things ETF (SNSR)
Readers who like the idea of diversification as a means by which to reduce risk might well consider an exchange-traded fund. One of the three main areas of 5G is IoT. The Global X Internet of Things ETF corresponds to the INDXX Global Internet of Things Thematic Index. Its 47 component stocks offer exposure to the IoT portion of 5G.
IoT is such a broad reaching development that it’s difficult to concisely state what it will affect. But the impacts of being able to connect devices to the internet will be far-reaching. A TechRepublic report from 2019 projected that by 2025 there could be 75 billion IoT connected devices. The same report estimated that the economic impact might eclipse $11 trillion by the same year. Another report anticipated a 14.9% CAGR between 2019 and 2024 in the global IoT solutions and services market size.
In the realm of IoT security concerns, there is probably no better way to get overall exposure to the security concerns than through this ETF. Simply buy this alone. If 5G security problems arise in IoT, this stock will reflect it. If 5G IoT proves to be secure, SNSR stock will likely rise.
Qorvo supplies radio frequency components (RF) to the mobile, infrastructure, and aerospace industries. The company may not be a household name but it is an important industry player. For readers familiar with the company, you may recognize it as a supplier to Apple (NASDAQ:AAPL) of RF components in the iPhone.
It is no secret that Apple is now producing its own chip sets following the problems it had with Intel (NASDAQ:INTC). Apple has recently announced that it will develop its own modem chips. RF chips need to work in tight concert with modem chips, leaving industry pundits speculating that RF chips will be the next developmental target for Apple. The news release did not affect QRVO stock, but it is something the company will have to address years into the future.
In fact, QRVO stock has done quite well over the past 12 months. Despite the unprecedented year, it is up 48%.
Qorvo realized some encouraging results in its latest earnings report. Gross profits rose to $547.9 million, up $172.8 million over the previous year. This led to margins of 51.7%, 5.2 percentage points higher than the previous year’s results.
Cisco Systems (CSCO)
Cisco Systems is a leader in endpoint security. Economists expect endpoint security to grow to $15.6 billion in 2024, from 8.2 billion in 2020. Cisco’s solutions prevent, detect, block, and remediate threats at endpoints.
Consumers can easily imagine how this is becoming increasingly important. Cisco is among the largest enterprise cyber-security companies in the world which should put it on the radar of all investors interested in the confluence of 5G and security.
Cisco may not be the most exciting company for investors in the realm of 5G. But it is a company that ticks a lot of boxes in terms of fundamental strength. It is a highly profitable company with ROE, ROA, and margins that are all well above the 90th percentile of industry peers.
Cisco is also a company which exhibits strong capital allocation abilities. Fundamentally the company makes a lot of sense. And for investors who want to invest in a company leading 5G security, CSCO stock is a strong choice.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.