Editor’s Note: This article is a part of our “If You Only Buy One Stock” series where we look at 2021’s most popular investing trends and have our top financial journalists make their very best pick. Click here to see more names for your must-buy list.
5G wireless technology is here, and it’s going to be spectacular.
The fifth and newest generation of wireless networking technology promises lower latency. It’s also up to 100 times faster than the previous standard, 4G.
With the tech expected to power everything from AI (Artificial Intelligence), IoT (Internet of Things) and a host of new applications, this $700 billion multi-year investment cycle is one investors won’t want to miss.
Those You Know, Those You Don’t
There two types of plays on 5G: those you know, and those you don’t. Let’s start with the stocks that have been obvious winners. The list includes chipmakers, service providers, equipment manufacturers and holders of real estate assets.
It’s no secret that the first wave beneficiaries have been the mobile handset and component suppliers. These stocks have also handily beat the market. Just look at investment darlings like Qualcomm (NASDAQ:QCOM), Skyworks (NASDAQ:SWKS), and NVIDIA (NASDAQ:NVDA) — which have rocketed on average, over 100% in the past 12 months.
Next in line: telecom service providers, equipment manufacturers, and real estate assets: companies that build the physical networks and the services that run over them. These stocks have also had healthy runs, with TMobile (NASDAQ:TMUS) and Ericsson (NASDAQ:ERIC) up an impressive 43% and 60% over the same period. Even the least sexy of 5G plays — telecom REITs, have also been on fire, with SBA Communications (NASDAQ:SBAC) and American Tower up up 20% from February lows.
With runs like these, it looks like the 5G train has left the station. And for the most part, it has. To be clear, these stocks, along with others in the 5G network supply chain are all still fundamentally sound investments. They should all continue to perform well over the next several years. But, with prices stretching to their historical peaks, most of the good news is priced in.
If You Could Buy Only One: Palo Alto Networks
Investors looking for a strong upshot in 5G don’t need to sit on the sidelines. There’s still an incredible investment opportunity here. It’s just less obvious. The “next big 5G stock” hasn’t even been boosted by 5G — yet. And, unlike the list of early winners above, it’s not in the network: it’s in the enterprise.
That’s why, if you could only invest in one 5G stock — the stock to buy is Palo Alto Networks (NASDAQ:PANW).
Corporate networks aren’t ready to handle 5G. They’re going to need major overhauls. The addressable market for 5G tech in business networks is pegged at $10.9 billion by 2027.
The biggest choke point: security. 5G’s faster speeds will extend the mobile workforce and automate new devices. It will also support applications that we haven’t even heard about yet. And old-time-y security approaches can’t scale to protect the massive tidal wave of connected devices– each of which is a potential intrusion point for a hacker.
For CIOs and network managers who don’t have specialized security expertise, supporting a more complicated 5G network is a headache.
That’s where Palo Alto comes in. The company makes a native cloud-based, end-to-end security solution.
It sounds a lot like marketing jargon, but “native” and “end-to-end” are important words here. Other security players have tried to retrofit legacy products. This architecture makes them less ready to handle complicated security issues that arise when mobile and fixed networks merge. Partnerships with two of the biggest 5G players, Dish Network (NASDAQ:DISH) and Telefonica (NYSE:TEF), underscore the company’s early technology lead.
A combination of very conservative Street expectations coupled with earnings leverage set the stock up nicely for beat-and-raise performance. With the shares down from recent highs, PANW is not only the best way to play 5G, but also a great multi-year investment story.
Disclosure: On the date of publication, Joanna Makris did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Joanna Makris is a Market Analyst at InvestorPlace.com. A strategic thinker and fundamental public equity investor, Joanna leverages over 20 years of experience on Wall Street covering various segments of the Technology, Media, and Telecom sectors at several global investment banks, including Mizuho Securities and Canaccord Genuity.