But that doesn’t mean that you should forget 5G stocks. They are still an excellent investment despite the hoopla surrounding the industry getting more muted.
Notwithstanding the negative effects of the novel coronavirus pandemic, 5G prospects remain bright. In fact, the virus could act as a tailwind of sorts for the wider sector. The coronavirus outbreak has forced us to shift several activities online. According to a Pew Research Center survey conducted in early April, 53% of Americans say the internet has been essential during this crisis.
However, no one was ready for the kind of bandwidth that we experienced during the pandemic. And that’s where the distribution and implementation of 5G become so important. Inevitably, there will be a short-term effect on 5G adoption because infrastructure spending has slowed down as governments all over the world scramble to deal with the enormous health crisis.
But with vaccines rolling out, the relatively minor delays in the rollout of 5G networks will be a thing of the past. This is the perfect time to invest in the space since there are notable value plays trading at a nice discount.
5G Stocks: AT&T (T)
We start this list of 5G stocks with a major company that strangely doesn’t get enough attention. AT&T is one of the most diversified companies in the world. However, wireless communication represents nearly 40% of the total revenues of the company. AT&T is one of the largest wireless carriers in the U.S., with Verizon (NYSE:VZ), and T-Mobile.
The other major segment that is contributing to revenues is consumer and entertainment, which includes WarnerMedia. Assets such as HBO, the Turner cable networks, and the Warner Brothers studios are nothing to scoff at. HBO Max, the streaming platform that bundles all of HBO together, is generating a lot of positive headlines for the last several months.
Now let’s talk about 5G and AT&T. By its own admission, the wireless carrier has the fastest nationwide 5G network based on Ookla data. Last year, its 5G network running on a low-band spectrum became available “nationwide,” quelling fears of investors spooked by Covid-19 and its impact on the company’s business segments.
Short term, the company will be spending a lot of money on acquiring more 5G spectrum. When the pandemic is hammering revenues, spending billions on the 5G spectrum will be a tough pill to swallow. However, purchasing the right to use certain radio frequencies for delivering 5G services is vital for the long-term profitability of AT&T. The cash being doled out is a smart strategy.
Overall, AT&T is whirring on all cylinders. With an enviable dividend yield of 7.2% and the stock trading at just 1.2x price-sales, the wireless carrier is a must-have for your portfolio.
T-Mobile US (TMUS)
From one telecom industry titan to the other. T-Mobile US is another major player in the 5G space. Over the last few years, it has greatly expanded its geographic footprint, gobbling up low-frequency spectrum at a rapid rate. Last year, T-Mobile made headlines after its all-stock $26 billion merger with Sprint finally closed.
According to a press release, the New T-Mobile network will have 14x the extra capacity in the next six years in comparison to T-Mobile alone. The merger of what was America’s third and fourth-largest wireless communications companies was a hotly anticipated affair.
Naturally, there will be skepticism regarding how quickly and effectively the company can absorb historically problematic Sprint assets. However, the company’s performance should instill faith. Sales and EPS have grown 16.1% and 25.3% on average in the last five years.
According to Stock Rover data, the telecom giant has outperformed analyst expectations in each of the last 12 quarters. In the fourth quarter, T-Mobile reported revenue of $20.3 billion and earnings of 60 cents per share. Analysts expected revenue of $19.9 billion and EPS of 51 cents. It added a net total of 1.7 million users in the quarter, beating Verizon and AT&T.
T-Mobile CEO Mike Sievert referred to 2020 as the best year ever for the wireless carrier. Looking ahead, Seeking Alpha data shows revenues will increase by 14.7% in fiscal 2021.
For all these reasons and more, TMUS is one of the best 5G stocks out there. However, there is one negative – valuation. Shares are trading at a P/E of 50.6x. That kind of premium valuation may make several investors skittish.
But the long-term prospects of the company are excellent. And that’s why you should buy this one. Based on 11 analysts offering 12-month price targets on TMUS stock, the average price target is $151.91, representing an upside of about 30%, per TipRanks.
American Tower (AMT)
We close this list of 5G stocks with one of my favorite asset classes. American Tower is a real estate investment trust with interests in wireless and broadcast communications infrastructure across several geographies.
Since it is structured like a REIT, the company must pay at least 90% of taxable income to unitholders. That makes it an excellent defensive stock.
American Tower has a portfolio of over 180,000 cell towers that it leases to wireless service providers to install its equipment on the towers to support their wireless networks. Despite its geographic diversification, more than half of its total revenue in 2020 came from the U.S. It’s a significant market for the company.
In the fourth quarter of 2020, the company acquired more than 2,000 new towers in the U.S. and Canada. This aggressive approach is one of the main reasons the company has done exceedingly well in the past year, despite a tough operating environment. In the last four quarters, the company has topped consensus funds from operations (FFO) estimates each time.
Looking ahead, Refinitiv data shows that revenues for the REIT will increase by 9.9% and 14.8% in 2021 and 2022, respectively. TipRanks tracks eight analysts offering 12-month price targets for American Tower. The average price target represents a 35% upside from the current price.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.