Earlier this summer, President Biden announced that his administration would spend $42 billion through the Broadband Equity Access and Deployment (BEAD) program to ensure that “every person in America” had internet access by 2030. And, of course, there are some obvious stocks that will benefit from the broadband plan.
“It’s the biggest investment in high-speed internet ever. Because for today’s economy to work for everyone, internet access is just as important as electricity, or water, or other basic services,” Biden said in a White House address in late June.
Today, I want to get creative with some not-so-obvious stocks to benefit from Biden’s broadband plan. They won’t necessarily be internet providers or cable companies, but rather some infrastructure stocks that help the internet work properly ranging from data centers to fiber optic cable manufacturers.
As a result, the names I suggest here might be something other than household names. However, I can assure you of two things: they will benefit from Biden’s push and they will already be profitable businesses.
VeriSign (VRSN)
Did you know Warren Buffett owns a big chunk of the domain registry provider VeriSign (NASDAQ:VRSN)? Because he does through Berkshire Hathaway (NYSE:BRK-A), which owns 12.4% of the internet registry business. However, because Berkshire has so much tied up in one stock — Apple (NASDAQ:AAPL) accounts for 45.2% of the holding company’s $364 billion equity portfolio — the $2.6 billion Verisign holding represents just 0.7%.
Why does Buffett like VeriSign? It made $364.4 million in the first six months of 2023 from $736.4 million in revenue. That’s nearly a 50% net margin, generating tremendous free cash from a slow-growth business.
The company reported Q2 2023 earnings at the end of July. Thanks to growth at its domain-name registry business, the top line grew by 5.7% to $372 million, while it earned $1.79 in the second quarter, 25 cents higher than a year earlier.
“Earlier this month we passed 26 years of 100 percent availability for the .com/.net domain name resolution system,” said Jim Bidzos, Executive Chairman and Chief Executive Officer.
VeriSign noted that it had 174.4 million .com and .net domain name registrations at the end of June, 0.1% higher than a year earlier. To ensure that it continues to make money from this legacy business, it plans to increase the annual registry-level wholesale fee it charges for each new and renewal .net domain name registration by 99 cents to $10.91. That should go into effect on Feb. 1, 2024.
Adding internet in all parts of rural America will have a knock-on effect on future revenue.
Viavi Solutions (VIAV)
I couldn’t remember why I knew the name Viavi Solutions (NASDAQ:VIAV), which provides testing solutions for fiber and other communications networks through their Network Enablement unit. And then it dawned on me that it was the old JDS Uniphase business.
In Q3 2023, Viavi’s Network Enablement business accounted for $149.6 million of its $247.8 million in revenue. Its two other segments — Service Enablement (SE) and Optical Security and Performance Products (OSP) — accounted for the rest.
Unfortunately, due to lower R&D spending by potential customers in the first half of calendar 2023, revenues fell by 21.5% YOY, with a 12.9% decline from Q2 2023. That resulted in a 58.2% YOY decline in non-GAAP earnings to $28.3 million.
CEO Oleg Khaykin stated:
“On a positive side, we saw the beginning of stabilization of demand for our field instruments during the March quarter. In the current quarter, we are seeing the signs of recovery in our Field Instruments and stabilization in the Lab & Production business. We expect the stabilization and recovery momentum to continue into the second half of calendar 2023.”
With VIAV stock down more than 26% over the past year, now would be a good time to look more closely at its shares. Four of the nine analysts covering its stock rate it a Buy, with five at Hold.
Clearfield (CLFD)
Clearfield (NASDAQ:CLFD) supplies the guts required for telecom, cable, and broadband providers to get fiber into homes and businesses across America. As I recently stated in a July article recommending the stock, “It calls itself ‘The Fiber to Anywhere Company.’ It has 44 patents on its various products.”
I also highlighted that less than half of American households have access to fiber internet. The Biden administration’s plans ought to help that, and Clearfield will undoubtedly benefit from the extra internet spending.
On Aug. 3, Clearfield reported its Q3 2023 results stating that revenues fell 10.0% to $61.3 million. As customers continue to work through inventory over the next few quarters, there will likely be a few more quarters with declining revenue YOY. In addition, its community broadband customers are waiting to see about internet funding before placing large orders.
In the Q3 press release, CEO Cheri Beranek stated,
“With government funding initiatives underway and significant rural broadband builds expected in the coming years, we anticipate strong demand for our core products once order patterns return to normalized levels.”
Once these two issues pass, it should be clear sailing for the company and its sales.
On the bottom line, Clearfield earned $10.4 million, 13% higher than a year earlier. On a per-share basis, earnings rose at a slower rate of 1.5% due to more shares outstanding.
The company’s balance sheet is very sound. It has no long-term debt, with nearly $172 million in cash, short-term, and long-term investments. Most of the money ($130 million) is from issuing stock last December for general corporate purposes, which I think was a timely offer. The 1.38 million shares sold were at $100, about 60% higher than today’s value. As a result, the company has plenty of cash to deploy for rural broadband projects over the next 12-24 months.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
