The 5G revolution is officially upon us. U.S. telecoms shelled out a total of $81 billion in the latest Spectrum auction, at which the Federal Communications Commission (FCC) put blocks of 5G-ready bandwidth up for sale. With another auction on the horizon, 5G stocks are top-of-mind for many investors hoping to capitalize on a more connected world.
But the piles of cash that telecoms are dropping on simply having 5G availability has made it difficult to choose the best stocks to buy. Some of them may come out the other side with a lot of debt and not much to show for it.
Still, there are plenty of players that will benefit from the 5G rollout — and that’s beyond from those supplying the network.
With that in mind, here’s a look at seven of the best 5G stocks to buy:
- T-Mobile (NASDAQ:TMUS)
- AT&T (NYSE:T)
- Apple (NASDAQ:AAPL)
- Skyworks Solutions (NASDAQ:SWKS)
- Micron (NASDAQ:MU)
- American Tower Corp (NYSE:AMT)
- Crowdstrike (NASDAQ:CRWD)
5G Stocks to Buy: T-Mobile (TMUS)
Picking a 5G winner among the telecom stocks is a risky business. That’s particularly true because no one knows exactly how the faster network will impact per-user revenues. But T-Mobil has one big advantage over competitors like Verizon (NYSE:VZ) and AT&T — it spent less than half of what they did to build out its 5G capacity.
TMUS committed roughly $11 billion at the most recent license auction, compared to AT&T’s $28 billion and Verizon’s $53 billion.
That’s largely because the group gained much of its network capacity from its Sprint acquisition; however, much of it is lower-speed. Add to that the fact that a year after the merge, T-Mobile is reaping much larger financial rewards than initially projected. This year, the group is expecting to see annual cost savings between $2.7 billion and $3 billion, with that figure rising to $6 billion by 2023.
That opens the door for management to return some of that cash to shareholders — something CEO Mike Sievert signaled was on the cards at the most recent investor event.
From a cost perspective, T-Mobile has the advantage when it comes to 5G telecoms. But AT&T takes the cake as the best value pick in the sector.
Admittedly, the firm isn’t exactly at its healthiest — an expensive merger with Time Warner took the wind out of its sails a few years ago and residual debt has been a ball-and-chain ever since. The company’s spending at the Spectrum auction won’t have held any, but ultimately it was a necessary evil to keep pace with competitors.
Where AT&T shines is in its potential to exploit the 5G rollout better than the rest of the telecoms. A big consideration right now is on whether the benefits of an updated network will trickle down to the providers themselves. As research firm Moffett Nathanson put it, “Does anyone think that Verizon’s ARPU (annual revenue per user) prospects are now $3 per month better than they were before the auction started? Of course not.”
That quote refers to the $53 billion VZ paid to acquire network capacity at the Spectrum auction. What premium will customers be willing to pay for something they’re already expecting? But AT&T has been building its business to encompass more than just a wireless network — the firm has its own content library as well — so the potential to up-sell to 5G customers is far greater.
There are a lot of reasons to buy Apple stock — from its enviable cash horde to its masses of loyalists willing to upgrade with every cycle. But 5G is another big reason to pick up the Big Fruit.
The firm’s most recent results pointed to the start of a 5G-related “super-cycle” as iPhone sales soared. People want to take advantage of better connectivity and the new features that affords them, so they’re more willing to re-up on their devices.
Apple is reaping the benefits of this across all categories. Not to mention the firm’s services arm is finally looking more promising after years of speculation that the group may have been falling behind its peers on the streaming front. Its latest foray into the at-home fitness craze shows Apple is committed to growing its reoccurring revenue, and that’s something every investor should applaud.
On top of all that, Apple’s financial fortitude means it can afford to reward shareholders in both good times and bad. The company has always been accommodative to shareholders through dividend payments and stock buybacks.
Skyworks Solutions (SWKS)
While device-makers like Apple represent more diversified plays on the 5G upgrade cycle, the companies that make the underlying components like Skyworks are a more pure play on consumers’ need to upgrade. Skyworks makes radio-frequency chips that allow devices to connect and it counts Apple as one of its customers.
But 5G means growth in more than just the mobile sector — everything from connected appliances to self-driving cars will be designed to use 5G, which could be a huge growth driver for Skyworks and its chips.
Plus, the company boasts impressive margins above 50%. Skyworks is on track to achieve its goal of 53% margins, which means that it will squeeze more dollars out of every additional sale throughout the 5G rollout. That should help underpin the group’s new $2 billion buyback scheme and reward shareholders that are willing to stick with SKWKs stock.
Another component maker that should benefit from 5G is Micron, a company that makes memory chips for a wide range of devices. 5G should specifically benefit the group’s dynamic random access memory (DRAM) chips, which offer the excess storage needed for the next generation of smartphones.
The group has been working to develop DRAM chips that use less power without sacrificing speed. That would put it at the top of the pack. DRAM prices have been rising significantly in the aftermath of the coronavirus pandemic. Those two factors should help prop up Micron’s pricing power and drive its revenue higher this year.
Notably, Micron stock’s price-to-earnings ratio is way above its long-term average. This suggests investors are expecting big things from the firm. But, for now, it looks like MU is ready to deliver.
American Tower Corp (AMT)
American Tower Corp is different from the others on this list in that it’s a real estate investment trust (REIT).
It invests in land and infrastructure and leases it out to the companies that need it. What’s nice about American Tower is that it operates long-term leases on its towers and they’re located across the U.S. The cost to add new customers is extremely low — it makes big up-front cash outlays to acquire and maintain the land and infrastructure.
That means each new lease is that much more profitable.
Switching costs for American Tower’s customers are high — they tend to be telecoms that don’t want to inflict service interruptions on their own users. So, ultimately American Tower’s revenue is extremely sticky.
REITs have taken a beating amid the pandemic and that has brought American Tower’s P/E to 40.4x. That’s roughly equal to it’s 10-year average. That’s by no means cheap, but it also hasn’t been this lowly valued in 4 years.
So far, all of the stocks on this list have been relatively obvious 5G plays, but cybersecurity firm CrowdStrike offers a different angle for investors who want to bet on more than one big tech trend.
As 5G rolls out, connectivity will grow and that means the need for better online protection will be of utmost importance. That’s particularly true for businesses whose operations have become largely digital.
CrowdStrike has gotten expensive this year because its unique security system specializes in protecting devices connected remotely. It has been an essential service with many companies transitioning to at-home working. But how well will CRWD do once things return to normal?
Management has high hopes. The group is seen growing revenue by another 50% this year as flexible working trends carry on beyond the pandemic.
Still, the stock is trading way beyond its long-term price-to-earnings ratio, so expectations are high. CrowdStrike isn’t the best of the 5G stocks if you’re risk averse, because it’s likely to see some big swings as investor expectations adjust. But for those with a longer view that can stomach some ups and downs, you might want to take a closer look at the cybersecurity firm.
As of this writing, the author primarily responsible for this article was long AAPL.